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TMI Blog1991 (9) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of excise under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (for short `the Additional Duties Act') as applicable by virtue of Section 3 of the Additional Duties Act. The notices also call upon the petitioners to show cause as to why additional duties of excise and cess payable on certain quantity of processed man-made fabrics should not be demanded from them under Rule 9(2) of the Central Excises Rules read with Section 11A of the Central Excises and Salt Act, 1944 (for short `the Central Excises Act') and further as to why differential additional duties of excise payable on goods of certain value cleared within a certain period as per details given in the notices should not be demanded from them under Section 11A of the Central Excises Act. There is, however, no challenge to this part of the show cause notices. 2.The petitioners say they are engaged in the processing of cotton fabrics and also man-made fabrics. They receive grey fabrics which may either be cotton fabrics, polyester fabrics or fabrics having polyester blend, and that under Section 3 of the Additional Duties Act, additional duty of excise is leviable in respect of these goods as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch goods under the Central Excises and Salt Act, 1944, or any other law for the time being in force. The provisions of the Central Excises and Salt Act, 1944,(3) and the rules made thereunder, including those relating to refunds and exemptions from duty, shall, so far as may be, apply in relation to the levy and collection of the additional duties as they apply in relation to the levy and collection of the duties of excise on the goods specified in sub-section (1)." 4.In the show cause notices, the second respondent has alleged contravention of Rules 9, 173B, 173D, 173F, 173G, 209 and 226 read with Rules 52A and 53 of the Central Excise Rules. These rules and Rules 13, 14A and 14B contain penal provisions under the Central Excise Rules and may briefly be referred to. 5.Sub-rule (1) of Rule 9 provides for time and manner of payment of duty. Sub-rule (2) of Rule 9 provides that if any excisable goods are removed in contravention of sub-rule (1) then the person removing such goods shall be liable to a penalty which may extend to two thousand rupees and such goods shall be liable to confiscation. Rule 13 lays down the procedure for export of excisable goods. Rules 14A and 14B re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner had also questioned the constitutional validity of the Additional Duties Act and it was stated that the payment of duty of additional excise over and above 4% ad valorem was not countenanced by the Additional Duties Act. These challenges were not pressed. The validity of the Additional Duties Act has already been upheld by this Court in M/s. Parekh Prints and Others v. Union of India and Others, 1992 (62) E.L.T. 253 (Del.) = 1991 (3) Delhi Lawyers 99 (DB), and special leave petition filed in the Supreme Court against that judgment had been dismissed. 7.The respondents state that Section 3 of the Additional Duties Act makes all the provisions of the Central Excise Act and the Rules made thereunder, including those relating to refund and exemption from duty applicable, so far as may be, to the Act. They say that the wordings "apply in relation to the levy and collection of additional duties as they apply in relation to the levy and collection of duties of excise on the goods specified" are expressive enough to make all provisions in the Central Excises Act and Rules applicable, if they are "in relation to" the levy and collection of excise duty. They say that confiscation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created liability for additional duty for excise but created no liability for any penalty. That being so the respondents could not proceed to impose any penalty or confiscate the goods of the petitioners by invoking the provisions of the Central Excises Act and the Rules made thereunder. He said if the definition of "additional duties" as contained in clause (a) of Section 2 of the Additional Duties Act is substituted for the expression "additional duties" as appearing in Section 3(3) of the Act, this would read as under :- "The provisions of the Central Excises and Salt Act, 1944 (1 of 1944), and the rules made thereunder, including those relating to refunds and exemptions from duty, shall, so far as may be, apply in relation to the levy and collection of the "duties of excise levied and collected under sub-section (1) of section 3" as they apply in relation to the levy and collection of the duties of excise on the goods specified in sub-section (1)." 9.He said when so read there was not even a whisper about penalty anywhere in this sub-section and the provision exclusively related to levy and collection of the tax, viz., the additional duty, and Mr. Parasaran further said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Investment Co. Ltd. and Others, AIR 1987 S.C. 1023, to contend that the word "includes" is generally used as a word of extension, but the meaning of the word or phrase is extended when it is said to include things that would not properly fall within its ordinary connotation, and, thus, where "includes" has an extending force, it adds to the word or phrase a meaning which does not naturally belong to it. But there cannot be any inflexible rule that the word "include" should be read always as a word of extension without reference to the context, and though "include" is generally used in interpretation clauses as a word of enlargement, in some cases the context might suggest a different intention. Mr. Parasaran, therefore, said that in the present case since the inclusion pattern in sub-section (3) of Section 3 of the Additional Duties Act related to refund and exemption, it established that it excluded such like penalties. Mr. Parasaran also said that wherever the Legislature wanted to borrow the provisions of another enactment in its entirety, it said so explicitly and did not use the terminology "including" and "as far as may be". In this connection he referred to Section 3(2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral Excises Act and the Rules thereunder was to levy and collect central excise and that the provisions of the rules were self-contained, each part containing certain obligations and providing for a consequence of penalty for non-compliance with those obligations. He said whole set of Rules were part of a scheme of levy and collection and penalty provisions were part of that scheme, and that it was well settled that in tax laws penalty provisions were part and parcel of assessment and in fact part of the process of levy and collection of tax. He then said that the additional duty of excise and the central excise duty under the Central Excises Act were both on the same goods and when sub-section (3) of Section 3 of the Additional Duties Act said that the Central Excises Act and Rules for levy and collection would apply to the levy and collection of additional duty it was as if under the Central Excises Act there was another section as imposing an additional duty. Therefore, the Central Excises Act and the Rules made thereunder would apply to levy and collection of both the central excise duty and the additional duty of excise, there being no difference in procedure. Mr. Ramaswamy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of penalty and the forfeiture of goods etc. and that the provisions of the Central Excise Rules regarding penalty and confiscation of goods etc. for default in payment of additional duties or contravention of any of those rules when there was no substantive provision relating to levy of penalty or confiscation of goods etc. in Additional Duties Act, could not be applied. It was submitted that Section 3(3) of the Additional Duties Act was merely procedural in nature and dealt with utilisation of the machinery under the Central Excises Act and the Rules made thereunder for the purpose of levy and collection of additional duties of excise. 13.Since both Khemka's case and Shiv Dutt Rai Fateh Chand's case deal with Section 9 of the Central Sales Tax Act, 1956 (for short `the C.S.T. Act') imposing penalties with reference to the State laws dealing with imposition of sales tax, it would be appropriate to set out relevant provisions of this section as a great deal of arguments had been addressed respecting these two judgments of the Supreme Court. Section 9(1) states that tax payable by any dealer under the C.S.T. Act on sales of goods effected by him in the course of inter-State trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to the assessment, re-assessment, collection and the enforcement of payment of any tax required to be collected under this Act in such State or in relation to any process connected with such assessment, reassessment, collection or enforcement of payment as if the tax under this Act were tax under such sales tax law." 15.It may also be noted that Section 10 of the CST Act provides for levy of penalties in certain circumstances. Under Section 10A of the CST Act, penalties could also be imposed in lieu of prosecution. Section 6 of the CST Act provides for liability to tax on inter-State sales. Section 8 provides for rate of tax on sales in the course of inter-State trade or commerce, and Section 9, as noted above, provides for levy and collection of tax and penalties. In Khemka's case the question raised was whether the assessee under CST Act could be made liable for penalty under the provisions of the State Sales Tax Act (for short `State ST Act'). In the case before the Supreme Court penalty had been imposed under the State ST Act for default in payment of taxes under CST Act within the prescribed time. The assessee in that case contended that there was no provision in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CST Act must have a substantive provision to warrant imposition of penalty and the provisions of the State ST Act regarding penalty for default in payment could not be applied when there was no substantive provision relating to levy or penalty in the CST Act in respect of the default. Third contention of the assessee was that Section 9(2) was procedural and only dealt with utilisation of existing machinery in State law. 16.There were three opinions expressed in that case. A.N. Ray, C.J. with whom Khanna J. agreed held that a penalty not being merely a sanction or an adjunct to or consequential to an assessment and not being just a machinery to enforce payment of a tax but in reality was a statutory liability in the absence of any express provision of levy of penalty for delay or default in payment of the tax under the Act, it was not open to the authorities under the State law to levy and recover penalty for delay or default in payment of tax under the Act. Mathew, J. with whom Chandrachud, J. ( as his Lordship then was) agreed took a contrary view holding that if for enforcing payment of tax due under the general sales tax law of the appropriate State the authorities thereu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hinery of the State ST Act incorporated for working out the CST Act. Beg, J. also observed that two views on an interpretation of Section 9(2) of the CST Act were equally well entertainable. He would rather prefer the view adopted by Ray, C.J. on the principle that the assessee must get the benefit of such uncertainty. He, however, at the same time, observed that the reasons for accepting the contentions on behalf of the assessee were quite compelling and decisive, and he also set out the reasons in brief. The learned judge said as under (para 37) :- "On a consideration of the provisions mentioned above, it seems to me to be clear that whatever may be the objects of levying a penalty, its imposition given rise to a substantive liability which can be viewed either as an additional tax or as a fine for the infringement of the law. The machinery or procedure for its realization comes into operation after its imposition. In any case it is an imposition of a pecuniary liability which is comparable to a punishment for the commission of an offence. It is a well settled canon of construction of statutes that neither a pecuniary liability can be imposed nor an offence created by mere impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant submitted return of the income of the firm as an unregistered firm. In the course of the assessment proceedings it was discovered that the firm had carried on transactions in different commodities in fictitious names and had failed to disclose substantial income earned therein. The Income-tax Officer assessed the suppressed income of the firm for the assessment years 1949-50 and 1950-51 and also issued notices under Section 28 of the Income-tax Act, 1922, for these two years requiring the firm to show cause why penalty should not be imposed. These notices were served upon the appellant. After considering the explanation of the appellant the Income-tax Officer imposed various amounts of penalties. Appeals against that order were dismissed by the Appellate Assistant Commissioner of Income-tax. The appellant then moved the High Court of Judicature at Kerala praying for a writ of certiorari quashing the orders of assessment and imposition of penalty. It was claimed that after the dissolution of the firm by the death of Thomas in October 1949, no order imposing a penalty could be passed against the firm. The High Court rejected the writ petition. The appellant thereupon appealed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sense of computation of income and there is in our judgment no ground for holding that when by Section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under Section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. Nor has the expression, "all the provisions of Chapter IV shall so far as may be apply to such assessment" a restricted content; in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business. By Section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee" 21.This judgment of the Supreme Court in Abraham's case has been distinguished in Khemka's case. This is how Chief Justice Ray in the course of his judgment in that case dealt with C.A. Abraham's case :- "The ratio of the decision does not support the submission. In Abraham's case (supra) the assessee was subjected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (2A) sill did not help the revenue. The court referred to the various provisions of the CST Act and considered the history of Section 9 as amended from time to time. It observed that before introduction of sub-section (2A) there was no express provision in CST Act itself authorising the levy of any penalty for delay or default in payment of tax due under that Act or other breaches of the general Sales Tax laws of the States in so far as they were adopted by Section 9(2) of the CST Act as part of the machinery under that Act. 24.One of the contentions raised in Shiv Dutt's case as noted above, was that the introduction of sub-section 2(A) in Section 9 of the CST Act did not have the effect of making the provisions relating to penalties leviable under the general sales tax laws of the State applicable to the proceedings under the CST Act. It was submitted by the petitioners that the Supreme Court in Khemka's case had pointed out that there was no specific provision levying penalties in the CST Act as it stood before its amendment in 1976 and this lacuna remained unfilled up and, therefore, no penalties could be recovered by utilising the provisions of the general sales tax laws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Amending Act VI of 1980. Whether the decision in(a)(ii) Empire Industries Limited v. Union of India, 1985 Supp (1) SCR 292 : (AIR 1986 SC 662) holding that these operations amount to a manufacture is wrongly decided and requires reconsideration. Whether the amendment brought about by the Amending Act of(b) 1980 of Section 2(f) and to tariff-items 19 and 22 of the Central Excise Act is ultra vires Entry 84 List I and, therefore, beyond the competence of the Union Parliament. Whether, at all events, even if the expanded concept of manufacture introduced by the Amendment is beyond the scope of Entry 84 List I, whether the impost is, at all events, referable to and supportable by the residual Entry 97 of List I. Whether, at all events, even if the amendments to Central(c) Excises Act are valid, the levy under the Additional Duties Act is unsupportable and without the authority of law as there is no corresponding enlargement of the definition of 'manufacture' under the Additional Duties Act. Whether the retrospective operation of the Amending Act is(d) an unreasonable restriction on the fundamental right of the 'processors' under Article 19(1)(g) of the Constitution. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t point was decision of this Court in Hindustan Milkfood Manufacturers Ltd. v. Union of India [1980 (6) E.L.T. 487] (to which Ranganathan, J. was a party) and he clarified this decision. The second point was in regard to the contention on behalf of the petitioners that the definition of the term "manufacture" enacted in the Central Excises Act as enlarged by the Amendment Act 6 of 1980 could not be read into the provisions of the Additional Duties Act. In the course of discussion on this point the learned Judge observed that the words "levy and collection" in sub-section (3) of Section 3 of the Additional Duties Act could not be construed differently from the words "levied and collected" used in sub-section (1) of Section 3 of that Act. Section 3(3), therefore, also covered the entire gamut of Section 3(1) and could not be construed as becoming operative at a somewhat later stage. Its operation could not be excluded in determining the scope of the charge. The learned Judge distinguished the decision of the Supreme Court in Associated Cement Company Ltd. v. Director of Inspection - 1985 (20) E.L.T. 239 (SC) = AIR 1985 S.C. 867, where the subject-matter was interpretation of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a percentage of the normal excise duty chargeable on those goods. He said nothing else remained except the quantification and the collection, but that was not the position before him. He said having regard to the nature and content of the levy indicated in Section 3(I), it was obvious that Section 3(3) had to have the effect of attracting not only the purely procedural and machinery provisions of the Central Excises Act but also some of its charging provisions. The learned Judge reasoned that the Additional Duties Act could not be worked at least in respect of goods where an ad valorem rate was prescribed unless Section 3(1) was read with Section 3(3) and the definition of "assessable value" in Section 4 of the Central Excises Act was read with the Additional Duties Act. Ranganathan, J. was, therefore, of the view that the Finance Acts which levied special or regular or additional excise duties contained in themselves all the elements of charge of duty. The goods were mentioned and the duty as to be levied either at a percentage of the normal excise duty payable under the Central Excises Act or at a percentage of the value of the assessable goods as determined under that Act. All ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reason why rebate was allowed and penalty was disallowed was that rebate was a concession whereas penalty was an imposition. The concession did not impose liability but penalty did. It, therefore, stood to reason that rebate was included within the procedural part of collection and enforcement of payment , and penalty like imposition of tax could not be included within the procedural part. 33.A distinction was sought to be created by the revenue that though there was no charge for penalty for non-payment, late payment or short deposit of the additional duty, but there could be a penalty without there being any sanction for charge thereof if there was contravention of the rules regarding maintenance of records etc., This distinction, to our mind, does not appear to be based on any sound reasoning. The object of maintenance of records and for doing other acts as per rules is only to collect proper amount of tax and within the prescribed period and the object for levying of penalty for non-payment or late payment, etc., is also the same. Confiscation or forfeiture of property is also a form of penalty. To appropriate the property of the assessee of the value equal to an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to publish name, place of business, etc., of the persons convicted for offences under the Act, presumption of culpable mental state, relevancy of statements under certain circumstances, and non-application of the provisions of Section 562 of the Code of Criminal Procedure and of the provisions of the Probation of Offenders Act, 1958. Then Section 10 empowers the court to order forfeiture of certain articles which have been used in the commission of the offence under the Act. Section 11 deals with recovery of sums due to Government. Section 11A deals with recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded, while Section 11B deals with claim for refund of duty, and Section 11C deals with power of the Central Government not to recover duty of excise not levied or short-levied as a result of general practice. Lastly, Section 12 authorises the Central Government to make applicable certain provisions of the Sea Customs Act, 1878 (now the Customs Act, 1962). It is difficult to appreciate how the provisions regarding offences under Section 9 can be said to form part of Chapter II dealing with levy and collection of duty. If this argument of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egarded as giving the key to the interpretation of the clauses ranged under it, unless the wording is inconsistent with such interpretation; and so the headings might be treated "as preambles to the provisions following them", but the other view is that resort to the heading can only be taken when the enacting words are ambiguous. In C.I.T. v. Ahmedbhai Umarbhai, AIR 1950 S.C. 134, the court observed that marginal notes cannot be referred to for the purpose of construing the statute and nor can the title of a chapter be legitimately used to restrict the plain terms of an enactment. In Director of Public Prosecutions v. Schildkamp, (1969) 3 All E.R. 1640 (H.L.), the respondent was prosecuted for an offence under Section 332(3) of the English Companies Act, 1948, falling in Chapter entitled "Offences antecedent to or in the course of Winding Up". The question was whether before a prosecution could be initiated under this section, the company must be in liquidation. By majority judgment the House of Lords held this to be so. A great deal of importance was attached to the heading in the English Companies Act, 1948, though the uncertainty concerned the scope rather than the meaning of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it through to understand it, it must read the cross-headings as well as the body of the Act and that will always be a useful pointer as to the intention of Parliament in enacting the immediately following sections. Whether the cross-heading is no more than a pointer or label or is helpful in assisting to construe or even in some cases to control the meaning or ambit of those sections must necessarily depend on the circumstances of each case, and I do not think it is possible to lay down any rules." 36.We are, thus, of the opinion that the argument that various sections falling in Chapter II of the Central Excises Act which has the heading "Levy and Collection" would all be construed as provisions for levy and collection of additional duty as well, is of no avail to the revenue and we reject this argument. In fact, as noted above, Chapter II contains no provision for levy of penalty. 37.When penalty is additional tax, constitutional mandate requires a clear authority of law for imposition thereof. If long-drawn arguments are needed to explain if the Act by referential legislation or legislation by incorporation levies penalty or not, it is better for the court to lean in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalties. The Supreme Court has construed the expression "levy" and "collection" in National Tobacco Company's case which would show that levy refers to imposition of tax as well as assessment and that the term "imposition" is generally used for levy of a tax or duty by the legislative provision, and further collection is equated to the recovery of the tax or duty imposed and assessed. Collection is stage subsequent to levy. In the absence of any provision for levy of tax or duty, the process of collection itself cannot create a levy and more so penalties. A statute must be regarded as penal for purposes of construction if it imposes a fine, penalty or forfeiture other than a penalty in the nature of liquidated damages, or other penalties which are in the nature of civil remedies (para 909, Halsbury Laws of England, Vol. 44, 4th Edition). As a general rule penalty enactments are to be construed strictly. That stage, however, does not arise in the present case. But a penal liability cannot be created by implication or intendment. We have already observed that provision levying penalty must be explicit. 39.We have given our considerable thought to various arguments raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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