2014 (6) TMI 198 - HC - Central Excise

Constitutional validity of mandatory penalty even in the absence of mens rea - Whether the Tribunal was correct in holding that penalty of an equal amount is mandatory under Rule 96ZO(3) and discretion for lesser penalty is not available under the said Rule - 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, an 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 in favour of assessee.

Summary

Issues:
1. Interpretation of Rule 96ZO(3) of the Central Excise Rules, 1944 regarding penalty imposition.
2. Discretion of imposing penalty under Rule 96ZO(3) in case of delay in payment of duty.
3. Validity of mandatory minimum penalty without mens rea and discretion under Rules 96ZO, 96ZP, and 96ZQ.
4. Applicability of judicial decisions on penalty imposition without mens rea and discretion.

Issue 1: Interpretation of Rule 96ZO(3):
The appeal involved the interpretation of Rule 96ZO(3) of the Central Excise Rules, 1944 regarding the imposition of penalties for delay in payment of duty. The Tribunal imposed a penalty equal to the duty amount for a specific period, leading to the appeal by the assessee.

Issue 2: Discretion under Rule 96ZO(3):
The key question was whether the Tribunal was correct in imposing a penalty equal to the duty liability without considering reasons and the quantum of delay, and if discretion for a lesser penalty was available under Rule 96ZO(3). The Tribunal's decision on the penalty amount and its imposition for a specific period were challenged in the appeal.

Issue 3: Validity of mandatory minimum penalty:
The judgment analyzed the validity of mandatory minimum penalties without mens rea and discretion under Rules 96ZO, 96ZP, and 96ZQ. The Court held that such provisions were excessive and unreasonable restrictions on fundamental rights, being arbitrary and ultra vires the Act and the Constitution.

Issue 4: Applicability of judicial decisions:
The judgment referred to various judicial decisions, including Bansal Alloys & Metals (P.) Ltd., Krishna Processors, and Shubh Timb Steel Ltd., to support the argument that penalties without mens rea and discretion are beyond the legislative purpose. These decisions highlighted the need for penalties to be reasonable, considering each case's unique circumstances.

In conclusion, the High Court allowed the appeal, setting aside the Tribunal's order and remitting the matter for a fresh decision in accordance with the law and the precedent set by the Bansal Alloys & Metals (P.) Ltd. case. The judgment emphasized the importance of discretion in penalty imposition and the need for penalties to be proportionate and reasonable based on the specific facts of each case.