2011 (4) TMI 530 - SC - Central Excise

Supreme Court: Rule 96-ZQ penalties mandatory.

The Supreme Court held that Rule 96-ZQ of the Central Excise Rules, 1944 is mandatory in nature, emphasizing the absence of discretion in imposing ... Quantification of penalty - Tribunal held that in the present case Rule 96-ZQ is applicable but the only difference is that while the Commissioner imposed penalty of an amount equivalent to duty, which is 100 per cent, the Tribunal although held that it was a case of Rule 96-ZQ of the Central Excise Rules, 1944, and was a case of penalty and exercised its discretion in scaling down the quantum of penalty to Rs. 1 lac only - In the case of Union of India and Others v. Dharamendra Textile Processors and Others - (2008 (9) TMI 52 - SUPREME COURT) wherein it was held that though the application of Section 11-AC would depend upon the existence or otherwise of the conditions expressly stated in the section, but once the section is applicable in a case, the Authority concerned would have no discretion- in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. Here is a case where Rule 96-ZQ is directly applicable and, therefore, the three-Judges Bench squarely covers this case - Appeals are allowed Issues:1. Challenge against the judgment and order passed by CEGAT regarding quantification of penalty.2. Interpretation of Rule 96-ZQ of the Central Excise Rules, 1944.3. Whether the provision of Rule 96-ZQ is mandatory in nature.4. Application of Section 11-AC of the Central Excise Act, 1944.5. Discretion of authorities in imposing penalty under Rule 96-ZQ.Analysis:1. The appeals were filed challenging the judgment and order passed by CEGAT regarding the quantification of penalty. The Commissioner of Central Excise and the Tribunal held that the case falls under Rule 96-ZQ of the Central Excise Rules, 1944. While the Commissioner imposed a penalty equivalent to the duty amount (100%), the Tribunal exercised discretion and reduced the penalty to Rs. 1 lac only. The issue was whether the Tribunal had the authority to exercise such discretion.2. The appellant argued that Rule 96-ZQ is mandatory in nature and no discretion could have been exercised by the Tribunal. Rule 96-ZQ, specifically sub-Rules (3) and (5), outlines the duty payment schedule and penalties for non-compliance. Sub-Rule (5) mandates that failure to pay duty results in a penalty equal to the outstanding duty amount or Rs. 5,000, whichever is greater.3. The Supreme Court, referring to previous judgments, emphasized the mandatory nature of Rule 96-ZQ. The Court highlighted that the use of the term 'shall' in the provision indicates its mandatory character. The Court also cited a previous case where it was held that there is no discretion to levy duty less than what is legally and statutorily leviable.4. The Court discussed the introduction of Section 11-AC of the Central Excise Act, 1944, which clarified that there is no scope for discretion in imposing penalties. The Court referenced the Union Budget of 1996-1997, which reinforced that the levy of penalty is mandatory. The Court concluded that any notion of discretion in Rules 96-ZQ and 96-ZO cannot be sustained.5. In light of the above analysis, the Court set aside the Tribunal's order and reinstated the Commissioner's order, emphasizing the mandatory nature of Rule 96-ZQ and the absence of discretion in imposing penalties. The Court allowed the appeals, directing each party to bear their own costs.