2012 (11) TMI 72 - AT - Central Excise

Penal proceeding under Rule 96ZP Held that - Mere fact that without mens rea one can be punished or penalty could be imposed is not a blanket power without providing any justification - penal provision of Rule to the extent of providing mandatory minimum penalty without any mens rea is excessive and unreasonable restriction on fundamental right and is arbitrary - exercise of such power by way of subordinate legislation is not permissible when rule making authority for levying penalty is limited to default with intent to evade duty - appeal of Revenue is dismissed

Summary

Issues:
1. Interpretation of penal provisions under Rule 96ZP of Central Excise Rules, 1944 regarding the initiation of penal proceedings and imposition of penalties.
2. Whether penal provisions imposing mandatory minimum penalty without mens rea are excessive and unreasonable restrictions on fundamental rights.
3. Application of the proportionality test in determining the validity of penal provisions.
4. Impact of judicial decisions on the interpretation and application of penal provisions in tax laws.

Issue 1: Interpretation of penal provisions under Rule 96ZP regarding initiation of penal proceedings and imposition of penalties:

The Respondent argued that penal proceedings under Rule 96ZP must be initiated within the limitation period, and in the absence of mala fide, penalties should not be imposed. Citing the decision of the Hon'ble High Court of Punjab & Haryana in Bansal Alloys & Metals (P) Ltd. v. UOI, it was contended that a reasonable period should be provided depending on the nature of the statute to avoid belated initiation of penal proceedings. On the other hand, the Appellant contended that there is a mandatory penalty prescribed by law, and relief from penalties should not be granted to defaulters. The Appellant relied on the decision in CCE, Mumbai v. Sunil Silk Mills to support this argument.

Issue 2: Whether penal provisions imposing mandatory minimum penalty without mens rea are excessive and unreasonable restrictions on fundamental rights:

The Tribunal analyzed the proportionality of the imposition of penalties under Rule 96ZP. Referring to the judgment of the Hon'ble High Court of Punjab & Haryana in Bansal Alloys & Metals Pvt. Ltd., it was observed that the mandatory minimum penalty without mens rea was considered excessive and an unreasonable restriction on fundamental rights. The Court emphasized the importance of mens rea in legal consequences and held that penalties should be proportionate. The Tribunal noted that the decision was binding, and the Rule was struck down as ultra vires due to not meeting the proportionality test.

Issue 3: Application of the proportionality test in determining the validity of penal provisions:

The Tribunal highlighted that the power of the legislature is circumscribed by fundamental rights, and judicial review is permissible for excessive restrictions. The Court emphasized that the exercise of power by subordinate legislation for levying penalties should be limited to default "with intent to evade duty." The Tribunal concluded that mens rea is an essential principle for the consequence of law, and the Rule not meeting the proportionality test was deemed ultra vires.

Issue 4: Impact of judicial decisions on the interpretation and application of penal provisions in tax laws:

The judgment emphasized the significance of judicial decisions in interpreting and applying penal provisions in tax laws. It was noted that the law laid down by the Hon'ble Court is binding on the Tribunal, and the argument that mens rea is not essential was not acceptable based on the precedent set by the Hon'ble High Court. Consequently, the appeal of the Revenue was dismissed, and the cross objection was disposed of in accordance with the judicial findings.

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