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TMI Blog2008 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... for attracting civil liability as is the case in the matter of prosecution under Section 276C of the I.T. Act. - 10289 to 10303 of 2003 with others - - - Dated:- 29-9-2008 - ARIJIT PASAYAT, P. SATHASIVAM and AFTAB ALAM JJ. Civil Appeals Nos. 10289 to 10303 of 2003 with Civil Appeals Nos. 3397 to 3399 of 2003, 4094 and 4096 of 2004, 3388, 5272 and 5277 of 2006, Nos. 372, 675, 2793, 1420, 4311, 4316, 4317, 4320, 4321 to 4324, 4331 to 4334, 4361, 6001 and 6971 of 2007 and Nos. 1901, 1643, 1823, 2146, 5928 to 5935, 5937 to 5945, 5952, 5953, 5955 to 5978 of 2008. Additional Solicitor-General of India : M. Chandrasekharan. Senior Advocates : S. Ganesh, S. S. Naganand and Raghavendra S. Srivastava. Other Advocates : P. Parmeswaran, Manish Pushkarna, S. Sunil, Naveen Prakash, Ms. Rashmi Malhotra, Rahul Kaushik, Shailendra Sahni, Vikas Sharma, Ms. Alka Sharma, Ms. Asha G. Nair, B. K. Prasad, Ms. Aruna Gupta, B. V. Balram Dass, Ms. Meenakshi Arora, Amar Dave, Gaurav Goel, Mahesh Agarwal, E. C. Agrawala, Manish Kumar, Ansar Ahmad Chaudhary, Anil Bhansali, Satya Prakash, Ms. Promila Matta, E. M. S. Anam, Shanta Kr. Mahale, Rajesh Mahale, Harish, P. C. Jain, Abhishek Jaju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenged the vires of Rule 96ZQ(5) and the Gujarat High Court held that the said rule incorporated the requirement of mens rea. The Division Bench clarified that if the larger bench takes a view to say that the penalty leviable under the said clause is mandatory, it is still open to the assessee to challenge the vires of Rule 96ZQ(5). 4. During the course of hearing, learned counsel for the parties agreed that a similar issue is involved in respect of Rule 96ZO. 5. Mr. Chandrashekharan, Additional Solicitor General submitted that in Rules 96ZQ and 96ZO there is no reference to any mens rea as in Section 11AC where mens rea is prescribed statutorily. This is clear from the extended period of limitation permissible under Section 11A of the Act. It is in essence submitted that the penalty is for statutory offence. It is pointed out that the proviso to Section 11A deals with the time for initiation of action. Section 11AC is only a mechanism for computation and the quantum of penalty. It is stated that the consequences of fraud etc. relate to the extended period of limitation and the onus is on the revenue to establish that the extended period of limitation is applicable. Once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also made to Sections 271F and 272A of the said Income-tax Act. Reliance is placed on a decision of this Court in State of M.P. and Ors. v. Bharat Heavy Electricals [1997 (7) SCC 1] to contend that even if this Court held that it appears to give the expression that the imposition of penalty is mandatory, yet there was a scope for exercise of discretion. 8. It is submitted that various degrees of culpability cannot be placed on the same pedestal. Section 11AC can be construed in a manner by reading into it the discretion. That would be the proper way to give effect to the statutory intention. The relevant provisions i.e. Section 11AC, Rule 96ZQ and Rule 96ZO read as follows: "11AC- Penalty for short levy or non levy of duty in certain cases- Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steel from his factory in the account-current maintained by him under sub-rule (1) of rule 173G of the Central Excise Rules, 1944, subject to the condition that the total amount of duty liability shall be calculated and paid in the following manner :- I. Total amount of duty liability for the period from the 1 st day of 1 September, 1997 to the 31 st day of March, 1998 (a) a manufacturer shall pay a total amount calculated at the rate of Rs. 750 per metric tonne on capacity of production of his factory for the period from 1 st day of September, 1997 to the 31stday of March, 1998, as determined under the Induction Furnace Annual Capacity Determination Rules, 1997. This amount shall be paid by 31 st day of March, 1998; (b) the amount of duty already paid, together with on-account amount paid by the manufacturer, if any, during the period from 1 st day of September,1997 to the 31 st day of March, 1998, shall be adjusted towards the total amount of duty liability payable under clause (a); (c) if a manufacturer fails to pay the total amount of duty payable under clause (a) by the 31 st day of March, 1998, he shall be liable to pay the outstanding amount (that is the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt under sub-section (3) of section 3A of the Central Excise Act, 1944, the abatement will be allowed by an order passed by the Commissioner of Central Excise of such amount as may be specified in such order, subject to the fulfillment of the following conditions, namely- (a) the manufacturer shall inform in writing about the closure to the 1Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise 1, with a copy to the Superintendent of Central Excise, either prior to the date of closure or on the date of closure; (b) the manufacturer shall intimate the reading of the electricity meter to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise1, with a copy to the Superintendent of Central Excise, immediately after the production in his factory is stopped along with the closing balance of stock of the ingots and billets of non-alloy steel; (c) the manufacturer, when he starts production again, shall inform in writing about the starting of production to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise1, with a copy to the Superintendent of Central Excise, either prior to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... five thousand rupees, whichever is greater. Provided that if the manufacturer fails to pay the total amount of the duty payable for each of the months from September, 1997 to March, 1998 by the 30 th day of April, 1998, he shall also be liable to pay a penalty equal to the outstanding amount of duty as on 30 th day of April, 1998 or five thousand rupees, whichever is greater. Explanation - For removal of doubts it is hereby clarified that sub-rule (3) does not apply to an induction furnace unit which ordinarily produces castings or stainless steel products but may also incidentally produce non-alloy steel ingots and billets. (4) In case a manufacturer wishes to avail of discharging his duty liability in terms of sub-rule (3), he shall inform the Commissioner of Central Excise, with a copy to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, in the following proforma: "We (name of the factory), located at (address) hereby wish to avail of the scheme described in sub-rule (3) of rule 9620, for full and final discharge of our duty liability for the manufacture of ingots and billets of non-alloy steel undersection3A of the Central Excis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or rupees five thousand, whichever is greater. (6) If an independent processor, removes the processed textile fabrics referred to in sub-rule (1) without complying with any of the requirements contained in sub-rule (4), then, all such goods shall be liable to confiscation and the independent processor shall be liable to a penalty not exceeding rupees ten thousand. (7) Where an independent processor does not produce or manufacture the processed textile fabrics specified in sub-rule (1) during any continuous period of not less than fifteen days and wishes to claim abatement under sub-section (3) of section 3A of the Act, the abatement shall be allowed by an order passed by the Joint Commissioner of Central Excise of such amount as may be specified in such order, subject to fulfillment of the following conditions, namely: - (a) abatement shall be applicable only on the complete closure of the hot air stenter containing the chambers and not in case of closure of anyone or more chambers contained in such stenter; (aa) the independent processor shall not clear any non-stentered fabrics during the period for which abatement is claimed, and any clearance by him of non-stentered fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prior information under clause (b), if he is satisfied that such delay in giving information was caused due to unavoidable circumstances. Explanation. - For the purposes of these rules, an "independent processor" means a manufacturer who is engaged primarily in the processing of fabrics with the aid of power and who also has the facility in his factory (including plant and equipment) for carrying out heat-setting or drying, with the aid of power or steam in a hot-air stenter and who has no proprietary interest in any factory primarily and substantially engaged in the spinning of yarn or weaving or knitting of fabrics, on or after the 10 th December, 1998. 9. It would also be necessary to take note of Section 271(1)(c) and Section 271C of the Income-tax Act: "Section 271-Failure to furnish returns, comply with notices, concealment of income, etc. - (1) If the Assessing Officer or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person - (a) Omitted (b) Has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be treated as the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the first preceding year; and where the amount so added or deducted in the first preceding year is not sufficient to cover the utilised amount, that part of the amount so added or deducted in the year immediately preceding the first preceding year which is sufficient to cover such part of the utilised amount as is not so covered shall be treated to be the income of the assessee, particulars of which had been concealed or inaccurate particulars of which had been furnished for the year immediately preceding the first preceding year and so on, until the entire utilised amount is covered by the amounts so added or deducted in such earlier assessment years. Explanation 3 : Where any person who has not previously been assessed under this Act, fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 139 in respect of any assessment year commencing on or after the 1 st day of April, 1989, and, until the expiry of the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income,Unless, - (1) Such income is, or the transactions resulting in such income are recorded, - (i) In a case falling under clause (a), before the date of the search; and (ii) In a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date; or (2) He, in the course of the search, makes a statement under sub-section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income. Explanation 6 : Where any adjustment is made in the income or loss declared in the return under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Board as a collective investment scheme, including mutual funds, for sponsoring or carrying on any investment scheme, fails to comply with the terms and conditions of certificate of registration, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less; 15-E. Penalty for failure to observe rules and regulations by an asset management company. - Where any asset management company of a mutual fund registered under this Act fails to comply with any of the regulations providing for restrictions on the activities of the asset management companies, such asset management company shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less. 15-I. Power to adjudicate.- (1) For the purpose of adjudging under Sections 15-A, 15-B, 15-C, 15-D, 15-E, 15-F, 15-G and 15-H, the Board shall appoint any officer not below the rank of a Division Chief to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation' which attracts 'penalty' under Section 23(1)(a), FERA, 1947 and a finding that the delinquent has contravened the provisions of Section 10, FERA, 1947 that would immediately attract the levy of 'penalty' under Section 23, irrespective of the fact whether the contravention was made by the defaulter with any guilty intention' or not. Therefore, unlike in a criminal case, where it is essential for the 'prosecution' to establish that the 'accused' had the necessary guilty intention or in other words the requisite 'mens rea' to commit the alleged offence with which he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement, in cases of contravention of the provisions of Section 10 of FERA, would be discharged where it is shown that the 'blameworthy conduct' of the delinquent had been established by wilful contravention by him of the provisions of Section 10, FERA, 1947. It is the delinquency of the defaulter itself which establishes his 'blameworthy' conduct, attracting the provisions of Section 23(1)(a) of FERA, 1947 without any further proof of the existence of 'mens rea'. Even after an adjudication by the authorities and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, prevention of pollution, etc. in India and abroad. 'Absolute offences' are not criminal offences in any real sense but acts which are prohibited in the interest of welfare of the public and the prohibition is backed by sanction of penalty." (c) R.S. Joshi v. Ajit Mills Ltd.: ([1977] 4 SCC 98, page 110, paragraph19): "Even here we may reject the notion that a penalty or a punishment cannot be cast in the form of an absolute or no-fault liability but must be preceded by mens rea. The classical view that 'no mens rea, no crime' has long ago been eroded and several laws in India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude mens rea. Therefore, the contention that Section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the character of penalty." (d) Gujarat Travancore Agency v. CIT: ([1989] 3 SCC 52, page 55, paragraph 4) "It is sufficient for us to refer to Section 271 (1)(a), which provides that a penalty may be imposed if the Income Tax Officer is satisfied that any person has without reasonable cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Comp Cas pages 862 864-65, paragraph 47, 52 54) "47. Thus, the following extracted principles are summarised: (A) Mens rea is an essential or sine qua non for criminal offence. (B) A straitjacket formula of mens rea cannot be blindly followed in each and every case. The scheme of a particular statute may be diluted in a given case. (c) If, from the scheme, object and words used in the statute, it appears that the proceedings for imposition of the penalty are adjudicatory in nature, in contradistinction to criminal or quasi-criminal proceedings, the determination is of the breach of the civil obligation by the offender. The word 'penalty' by itself will not be determinative to conclude the nature of proceedings being criminal or quasi-criminal. The relevant considerations being the nature of the functions being discharged by the authority and the determination of the liability of the contravener and the delinquency. (D) Mens rea is not essential element for imposing penalty for breach of civil obligations or liabilities. (There can be two distinct liabilities, civil and criminal under the same Act..........................' 52. The SEBI Act and the Regulations, ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Words and phrases are symbols that stimulate mental references to referents. The object of interpreting a statute is to ascertain the intention of the legislature enacting it. (See Institute of Chartered Accountants of India v. Price Waterhouse [1977] 6 SCC 312). The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner [1846] 6 MOO PC1, the courts cannot aid the legislature's defective phrasing of an Act, they cannot add or mend, and by construction make up deficiencies which are left there. (See State of Gujarat v. Dilipbhai Nathjibhai Patel [1998] (3) SCC 234. It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. [See Stock v. Frank Jones (Tipton) Ltd [1978] (1) ALL ER 948 (HL). Rules of interpretation do not permit the courts to do so, unless the provision as it stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. "An intention to produce an unreasonable result", said Danckwerts, L.J. in Artemiou v. Procopiou (1965) 3 ALL ER 539 (All ER page 544 I) "is not to be imputed to a statute if there is some other construction available". Where to apply words literally would "defeat the obvious intention of the legislation and produce a wholly unreasonable result", we must "do some violence to the words" and so achieve that obvious intention and produce a rational construction. [Per Lord Reid in Luke v. IRC (1963) AC 557(HL) where at AC page 577 he also observed: (All ER page 664 I) "This is not a new problem, though our standard of drafting is such. 20. It is then true that: "When the words of a law extend not to an inconvenience rarely happening, but due to those which often happen, it is good reason not to strain the words further than they reach, by saying it is casus omissus, and that the law intended quae frequentius accidunt." 21. "But", on the other hand, "it is no reason, when the words of a law do enough extend to an inconvenience seldom happening, that they should not extend to it as well as if it happened more frequently, because it happens but seldom". (See Fent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilp N. Shroof's case [2007] (8) Scale 304 (SC), has not considered the effect and relevance of Section 276C of the Income-tax Act. Object behind enactment of Section 271(1)(e) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the Income-tax Act. 28. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given. 29. Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff's case [2007] (8) Scale 304 (SC), was not correctly decided but Chairman, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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