2024 (4) TMI 1035 - SC - VAT and Sales Tax

Penalty for diversion and unlawful sale of foreign liquor - Applicability of the relevant rule for imposition of penalty - whether it is the rule that existed when the violation occurred during the license period of 2009-10 or the rule that was substituted in 2011 when proceedings for penalty were initiated? - HELD THAT - The operation of repeal or substitution of a statutory provision is thus clear, a repealed provision will cease to operate from the date of repeal and the substituted provision will commence to operate from the date of its substitution. This principle is subject to specific statutory prescription. Statute can enable the repealed provision to continue to apply to transactions that have commenced before the repeal. Similarly, a substituted provision which operates prospectively, if it affects vested rights, subject to statutory prescriptions, can also operate retrospectively. The principle governing subordinate legislation is slightly different in as much as the operation of a subordinate legislation is determined by the empowerment of the parent act. The legislative authorization enabling the executive to make rules prospectively or retrospectively is crucial. Without a statutory empowerment, subordinate legislation will always commence to operate only from the date of its issuance and at the same time, cease to exist from the date of its deletion or withdrawal. The reason for this distinction is in the supremacy of the Parliament and its control of executive action, being an important subject of administrative law. The regulatory process requires the Government to deal with the problem of diversion and unlawful sale of foreign liquor and also provide an appropriate penalty and punishment. The process of identifying a crime and prescribing an appropriate punishment is a complex and delicate subject that the State has to handle while making rules and enforcing them. The gravity of the offence, its impact on society and human vulnerability are taken into account to provide the required measure of deterrence and reform - depending on the nature of offence, the proportionate penalty is required to be modulated from time to time. The single Judge as well as the Division Bench have adopted two different approaches and we have not agreed with either of them. The single Judge was of the view that the amendment by way of substitution has the effect of repealing the law which existed as on the date of repeal. We have already explained the limitation in this approach. The Division Bench on the other hand, held that levy of penalty is substantive law, and as such, it cannot operate retrospectively. This again is a wrong approach. The substituted penalty only mollifies the rigour of the law by reducing the penalty from four times the duty to value of the duty. The judgment of the Division Bench of the High Court set aside - appeal allowed.

Summary

Issues Involved:
1. Applicability of the relevant rule for imposition of penalty.
2. Interpretation and effect of substitution in legislative amendments.
3. Application of the Madhya Pradesh General Clauses Act, 1957 to subordinate legislation.

Summary:

Issue 1: Applicability of the Relevant Rule for Imposition of Penalty
The court examined whether the penalty should be imposed under the rule that existed during the license period of 2009-10 or the substituted rule of 2011. The appellant argued for the application of the substituted rule, which reduced the quantum of penalty. The court accepted the appellant's contention, stating that the purpose of the amendment was to achieve a proper balance between crime and punishment. It was determined that the substituted rule should apply to pending proceedings to serve public interest better.

Issue 2: Interpretation and Effect of Substitution in Legislative Amendments
The court discussed the distinction between supersession and substitution of a rule. It emphasized that substitution involves two steps: first, the old rule ceases to exist, and second, a new rule is brought into existence. The court cited precedents to support this interpretation, stating that substitution results in the repeal of the earlier provision and its replacement by the new provision. The court held that the substituted Rule 19, which reduced the penalty, should apply to pending proceedings, as it does not operate retrospectively but retroactively.

Issue 3: Application of the Madhya Pradesh General Clauses Act, 1957 to Subordinate Legislation
The state argued that the repealed rule could continue to apply to transactions from 2009-10 by virtue of the Madhya Pradesh General Clauses Act, 1957. The court examined Section 31 of the Act, which extends its provisions to subordinate legislation unless repugnant to the subject or context. The court concluded that the subject and context of the amendment to Rule 19, aimed at better administration and regulation of foreign liquor, did not support the continued application of the repealed rule. Therefore, the principle of Section 10 of the MP General Clauses Act, 1957, did not apply.

Conclusion:
The court allowed the appeals, setting aside the judgment of the Division Bench of the High Court. It held that the penalty should be imposed based on Rule 19 as substituted on 29.03.2011. There was no order as to costs.