2013 (10) TMI 259 - AT - Central Excise

Tribunal Reduces Excessive Penalty for Duty Delay, Cites Legal Precedents

The Tribunal found the penalty imposed on the appellant for delay in duty payment excessive and unsustainable, reducing it from Rs. 1,04,16,070 to Rs. ... Compounded Levy Scheme under Rule 96ZO of the Central Excise Rules - Penalty - The assesses were manufacturers of non-alloy steel ingots and billets chargeable to Central Excise duty under sub-heading 7206.90 of the Central Excise Tariff - Held that:- The provision to the extent of providing for mandatory minimum penalty without any mens rea and without any element of discretion was excessive and unreasonable restriction on fundamental rights and was arbitrary - exercise of such power by way of subordinate legislation was not permissible when rule making authority for levying penalty was limited to default “with intent to evade duty” - The writ petitions of the assessees were allowed and impugned provisions in Rules 96(ZO), (ZP) and (ZQ) permitting minimum penalty for delay in payment, without any discretion and without having regard to extent and circumstances for delay are held to be ultra vires the Act and the Constitution - In CWP No. 8555 of 2010, penalty had been sustained by the Tribunal to the extent of 100% which will stand quashed without prejudice to any fresh order being passed in accordance with - Krishna Processors v. Union of India [2012 (11) TMI 954 - GUJARAT HIGH COURT ]. The provision for minimum mandatory penalty equal to the amount of duty even for slightest bona fide delay without any element of discretion is beyond the purpose of legislation - The object of the rule was to safeguard the revenue against loss, if any - The penalty had been provided in addition to interest - Mere fact that without mens rea, one can be punished or a penalty could be imposed was not a blanket power without providing for any justification - In the Indian Constitutional scheme, power of legislature was circumscribed by fundamental rights - Judicial review of legislation was permissible on the ground of excessive restriction as against reasonable restriction which is also described as proportionality test - imposition of penalty equal to the outstanding duty liability was not sustainable - since there was delay in discharge of duty liability by the due date and the same by itself would attract penalty, imposition of some penalty would be required - Accordingly, the penalty on the appellant was reduced – Partial appeal allowed. Issues:1. Discharge of fortnightly duty liability under Rule 96ZO(3) of the Central Excise Rules.2. Imposition of penalty for delay in payment of duty.3. Interpretation of Rule 96ZO(3)(ii) by the Apex Court.4. Challenge to the vires of Rule 96ZO(3)(ii) before High Courts.5. Applicability of penalty provisions in case of delay in payment.Analysis:1. The appellant, a manufacturer of non-alloy steel ingots, was under the compounded levy scheme under Rule 96ZO of the Central Excise Rules for the period from April 1998 to April 1999. The appellant failed to discharge their fortnightly duty liability by the due date, leading to a penalty imposition issue.2. The jurisdictional Superintendent directed the appellant to pay a penalty of Rs. 1,25,04,000 for the delay in duty payment. The Commissioner (Appeals) initially set aside this penalty, but subsequent appeals and remand orders led to varying decisions on the penalty amount.3. The appellant argued that the penalty under Rule 96ZO(3)(ii) was excessive and challenged its vires based on judgments from the Apex Court and High Courts, which highlighted the lack of discretion in imposing penalties for slight delays in duty payment.4. The Departmental Representative defended the penalty imposition based on the interpretation of Rule 96ZO(3)(ii) by the Apex Court, emphasizing that the Adjudicating Authority had no discretion to lower the penalty amount.5. The Tribunal considered the arguments and legal precedents, including the judgments from the Hon'ble Punjab and Haryana High Court and the Hon'ble Gujarat High Court, which struck down Rule 96ZO(3)(ii) as ultra vires due to its mandatory penalty provisions without discretion.6. Consequently, the Tribunal found the penalty of Rs. 1,04,16,070 equal to the outstanding duty liability unsustainable. While acknowledging the need for some penalty due to the delay in duty payment, the Tribunal reduced the penalty to Rs. 5,00,000, considering the circumstances and legal interpretations.This detailed analysis of the judgment addresses the issues surrounding the discharge of duty liability, penalty imposition, interpretation of Rule 96ZO(3)(ii), challenges to its vires, and the final decision by the Tribunal to reduce the penalty amount based on legal principles and precedents.