2014 (6) TMI 197 - HC - Central Excise

Constitutional validity of mandatory penalty even in the absence of mens rea - Whether merely demanding interest and imposing penalty from/on the assessee in case of violation of certain Sections/Rules, the provisions in Rules 96(ZO), (ZP) and (ZQ) permitting minimum penalty for delay in payment, without any discretion and without having regard to extent and circumstances for delay can be held to be ultra vires of the Act and the Constitution - Held that - provision for minimum mandatory penalty equal to the amount of duty even for slightest bonafide delay without any element of discretion is beyond the purpose of legislation. The object of the rule is to safeguard the revenue against loss, if any. The penalty has been provided in addition to interest. Mere fact that without mens rea, one can be punished or a penalty could be imposed is not a blanket power without providing for any justification. In the Indian Constitutional scheme, power of legislature is circumscribed by fundamental rights. Judicial review of legislation is permissible on the ground of excessive restriction as against reasonable restriction which is also described as proportionality test. When Section 37, which is the rule making power, is clear that penalty can be imposed only when the assessee is guilty of intending to evade the payment of duty, the penalty cannot be imposed without such intention. Furthermore, even when intention may be there, the penalty must be reasonable and cannot, in all cases, be fixed at 100% of the excise leviable. Each case must be decided on its own facts and circumstances. There may be cases where the delay is only of a day or two and the authorities must be given the discretion to impose the penalty which they feel is reasonable in the facts and circumstances of the case - Decided against of Revenue.

Summary

Issues:
1. Interpretation of provisions in Rules 96(ZO), (ZP), and (ZQ) regarding minimum penalty for delay in payment.
2. Validity of mandatory minimum penalty without discretion and mens rea.
3. Correctness of the decision by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
4. Applicability of previous judgments on similar issues.

Issue 1: Interpretation of provisions in Rules 96(ZO), (ZP), and (ZQ) regarding minimum penalty for delay in payment:
The High Court dealt with a bunch of appeals where the main issue was the interpretation of provisions in Rules 96(ZO), (ZP), and (ZQ) of the Central Excise Rules, 1944, related to minimum penalty for delay in payment. The Court examined whether these provisions were ultra vires of the Act and the Constitution due to their lack of discretion and consideration for the circumstances of the delay.

Issue 2: Validity of mandatory minimum penalty without discretion and mens rea:
The Court analyzed the validity of imposing a mandatory minimum penalty without discretion and mens rea. It considered whether such penalties, even for slight delays without intent to evade duty, were excessive and unreasonable restrictions on fundamental rights, declaring them arbitrary and ultra vires of the Act and the Constitution.

Issue 3: Correctness of the decision by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT):
The Court reviewed the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in upholding the penalty imposed on the assessee. It examined whether the Tribunal's decision was correct in allowing the appeal of the party and whether the order merited to be set aside by the High Court.

Issue 4: Applicability of previous judgments on similar issues:
The Court considered previous judgments, including one by the Punjab and Haryana High Court, regarding the provisions for minimum mandatory penalties. It referenced judgments from the Gujarat and Himachal Pradesh High Courts that supported the view that penalties without discretion and mens rea were ultra vires, reinforcing the decision made in the present case.

In the judgment, the High Court addressed the appeal filed by the revenue against the order of the Tribunal. The case involved an assessee engaged in the manufacture of Non-alloy Steel Ingots under a compounded levy scheme. The assessee failed to pay duty liabilities on time, leading to interest and penalties. The Court examined the legality of imposing penalties without considering the circumstances of the delay and without discretion, ultimately declaring such provisions as ultra vires the Act and the Constitution.

The Court referenced its previous judgment in a similar case where it held that penalties without mens rea and discretion were excessive and unreasonable restrictions on fundamental rights. The Court emphasized that penalties should be imposed only when there is intent to evade duty, and the amount should be reasonable based on the facts and circumstances of each case. The Court dismissed the appeals, concluding that no substantial question of law arose in the matter based on the established legal principles and previous judgments on the issue.