2014 (4) TMI 1056 - HC - Central Excise

High Court affirms CESTAT's penalty reduction decision under Central Excise Rules

The High Court upheld CESTAT's decision to reduce the penalty imposed on an assessee under Rule 96ZO of the Central Excise Rules, 1944, to Rs. 5,000. ... Penalty under Rule 96ZO - Whether the CESTAT is justified in reducing the penalty de hors the Clause (ii) of third proviso to sub-rule (3) of Rule 96ZO of the Central Excise Rules, 1944 which is in the nature of imposition of mandatory penalty and the adjudicating authority/appellate authority is bound to impose a penalty equivalent to outstanding amount of duty or ₹ 5,000/- whichever is greater - Held that:- Authorities below had consistently found that there was imminent justifiable reason and there was a genuine cause for the respondents inability to pay the duty amount on the due date. Be that as it may, in view of the judgment of the Supreme Court [1965 (10) TMI 11 - SUPREME Court] that imposition of penalty in terms of Rule 96ZO is held to be mandatory - High Court while exercising powers under Section 35G of the Act, exercises such power as a creature of the statute and exercises such power within the statutory scheme and administers the statutory provisions and cannot travel beyond the statute. - No Illegality in the orders of the CESTAT and in the factual situation and in the light of the subsequent developments after the orders of the CESTAT in the year 2005, as a matter of fact, the substantial question of law really do not arise in the present cases for consideration of this Court. - Decided against Revenue. - Decided against Revenue. Issues:1. Reduction of penalty by CESTAT de hors Clause (ii) of third proviso to sub-rule (3) of Rule 96ZO of Central Excise Rules, 1944.2. CESTAT's discretion in imposing penalties without relevant rules.3. Lack of authorization pronouncement by High Court or Supreme Court on the issue of penalty imposition.Issue 1:The case involved the imposition of a penalty on an assessee for non-payment of duty on specified dates, invoking Rule 96ZO of the Central Excise Rules, 1944. The Commissioner reduced the penalty to Rs. 5,000 based on a previous judgment. The Department appealed to CESTAT, which upheld the Commissioner's decision. The Department argued that the penalty imposition is mandatory as per Supreme Court rulings, while the respondent contended that penalties should be proportionate and discretionary. The High Court analyzed the facts, finding a delay of 8 days in payment due to financial reasons. However, considering the Supreme Court's stance on mandatory penalties and subsequent developments, the Court dismissed the appeal, stating that no illegality was found in CESTAT's orders.Issue 2:The Department contended that penalties under Rule 96ZO are mandatory, citing Supreme Court judgments. On the other hand, the respondent argued that penalties should be proportionate and discretionary, based on previous decisions. The respondent highlighted conflicting judgments and the pending consideration of the rule's validity by various High Courts. The High Court acknowledged the mandatory nature of penalties as per the Supreme Court but also considered the rule's validity. The Court concluded that no illegality was found in CESTAT's decision based on the legal principles established by the Supreme Court.Issue 3:The lack of specific High Court or Supreme Court pronouncements on the penalty imposition issue was raised. The respondent pointed out conflicting judgments and the rule's validity challenges in various High Courts. The High Court referred to a Supreme Court ruling emphasizing that penalties should be decided within the statutory framework and cannot be imposed under a non-existing or ultra vires rule. Considering the legal precedents and subsequent developments, the Court dismissed the appeals, stating that the substantial legal questions did not arise for consideration.In conclusion, the High Court dismissed the appeals, upholding CESTAT's decision on penalty reduction based on the legal principles established by the Supreme Court and the rule's validity challenges in various High Courts. The judgment emphasized the mandatory nature of penalties under Rule 96ZO while also considering the discretion and proportionality arguments presented by the parties.