High Court Quashes Orders Omitting Rules, Declares Rule Unconstitutional

The Gujarat High Court quashed the impugned orders due to the omission of Rule 96ZQ/96ZP and Section 3A, declaring Rule 96ZQ(5)(ii) ultra vires the Constitution. The court emphasized the need for clear legislative authority for penalties and ruled that proceedings under omitted rules cannot continue post-omission. The decision clarified that Section 6 of the General Clauses Act does not apply to omissions and Section 38A of the Central Excise Act does not save obligations under omitted provisions. The Supreme Court decision cited did not address the jurisdictional issue raised in the case.

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Issues: (i) Whether, after omission of Rule 96ZQ and Rules 96ZP and 96ZO, proceedings could be initiated or continued thereunder and whether, after omission of Section 3A, pending proceedings under the compounded levy scheme could survive; (ii) Whether Rule 96ZQ(5)(ii), which mandates penalty equal to the duty outstanding without conferring any discretion, is ultra vires the Constitution and the Act.

Issue (i): Whether, after omission of Rule 96ZQ and Rules 96ZP and 96ZO, proceedings could be initiated or continued thereunder and whether, after omission of Section 3A, pending proceedings under the compounded levy scheme could survive.

Analysis: The omission of the rules by notification did not contain a saving provision comparable to Section 6 of the General Clauses Act for fresh initiation after the rules ceased to exist. Section 38A of the Central Excise Act protected only amendments, repeals, supersessions or rescissions of rules, notifications or orders, and did not extend to an omission of the parent charging provision, Section 3A. Since Rule 96ZQ and the connected rules were machinery provisions under Section 3A, once Section 3A was omitted without a saving clause, pending proceedings not concluded by that date could not be carried forward or concluded thereafter.

Conclusion: No proceedings could validly be initiated after omission of the rules, and no pending proceeding under the scheme could be concluded after omission of Section 3A; the impugned orders were without authority of law.

Issue (ii): Whether Rule 96ZQ(5)(ii), which mandates penalty equal to the duty outstanding without conferring any discretion, is ultra vires the Constitution and the Act.

Analysis: The rule imposed the same penalty for every default after the end of the month, irrespective of whether the delay was one day or substantial, and irrespective of the cause or gravity of the default. It treated materially different cases alike, conferred no discretion on the adjudicating authority, and was more onerous than the statutory penalty framework in the parent Act. The provision was also not supported by the limited rule-making power under Section 37, which authorised a penalty not exceeding five thousand rupees for breach of a rule where no other penalty was provided by the Act.

Conclusion: Rule 96ZQ(5)(ii) is ultra vires Articles 14, 19(1)(g) and 265 of the Constitution of India and is beyond the rule-making power under the Act.

Final Conclusion: The petitions succeeded, the impugned penalty and demand orders were quashed, and the compounded levy proceedings could not be sustained after the statutory omission of the governing provisions.

Ratio Decidendi: Where a charging provision and its companion machinery rules are omitted without a saving clause, pending proceedings not finally concluded do not survive; and a penal rule that mandates equal penalty for all defaults without discretion or regard to circumstances is unconstitutional for arbitrariness and lack of statutory authority.

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