2015 (4) TMI 246 - HC - Central Excise

High Court rules penalties not mandatory under Central Excise Rules. Tribunal decision upheld, appeals dismissed.

The High Court held that the imposition of penalties under Rule 96ZO(3) of the Central Excise Rules, 1944 was not mandatory. The Court ruled in favor of ... Imposition of penalty - Whether imposition of penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 equal to the amount of duty not paid during the stipulated period is mandatory - Held that:- Assessee, engaged in the manufacturing of M.S. Ingots/Billets of Non Alloy Steel, was in default of Rule 96-ZO(3) of the Rules for delay in depositing the duty, which was paid on later dates. The show cause notices were issued under Rule 96-ZO(3) and 209 of the Rules, in which the demand of interest amount of ₹ 24,095/- was liable to be paid, at the same time, attracting violation of the Rule 96-ZO(3) of the Rules, a penalty of ₹ 57 lacs was imposed by the order-in-original. - Commissioner(Appeals-I), reduced the penalty to ₹ 5 lacs. The Customs, Excise & Service Tax Appellate Tribunal, New Delhi(CESTAT), vide its previous judgment, relying upon Mool Chand Steels Pvt. Ltd. Vs. CCE, Meerut, (2004 (11) TMI 563 - CESTAT NEW DELHI), reduced the penalty to an amount of interest, at ₹ 26,000 In the judgments cited by the Central Excise Department, the question of vires of the Rules was not considered. The judgments were rendered in view of Dharmendra Textile Processors' case(2008 (9) TMI 52 - SUPREME COURT ), which was later on explained in Union of India Vs. Rajasthan Spinning & Weaving Mills(2009 (5) TMI 15 - SUPREME COURT OF INDIA), and in which, it was clearly stated by the Supreme Court that the judgment in Dharmendra Textile Processors' case(2008 (9) TMI 52 - SUPREME COURT ), was relevant only for the purpose of Section 11AC of the Central Excise Act, and that so far as several other statutory provisions are concerned, the Court is not making any observations. - once the Rule has been declared ultra vires by the High Court, having competent jurisdiction to provide such determination, the same Rule cannot be relied on for the purposes of imposing penalty, equal to the amount of central excise duty of the relevant period. - Decided in favour of the assessee. Issues Involved:1. Whether the imposition of penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 equal to the amount of duty not paid during the stipulated period is mandatoryRs.2. Whether the Tribunal committed error in reducing the penalty without adverting to the facts and circumstances of the caseRs.Detailed Analysis:1. Mandatory Imposition of Penalty under Rule 96ZO(3):The primary issue was whether the imposition of penalty under Rule 96ZO(3) is mandatory. The Commissioner, Central Excise, argued that the matter was settled by the Supreme Court in the case of Commr. Of Cus. And Cen. Exc., Coimbatore Vs. Kannapiran Steel Re-Rolling Mills, where it was held that the provisions of Rule 96-ZP are identical to Rule 96-ZQ and Rule 96-ZO, and thus, the penalty under these rules is mandatory without any discretion. This was further supported by the Supreme Court's decision in Union of India Vs. Dharmendra Textile Processors and Others, which clarified that there is no scope for discretion in the imposition of penalties under Section 11AC of the Central Excise Act, 1944, making the penalty mandatory.The Supreme Court's consistent stance in subsequent cases like Commissioner of C.Ex., Hyderabad-III Vs. Prudential Spinners Ltd., and Commissioner of C.Ex., Mumbai Vs. Sunil Silk Mills reinforced this view, affirming that the penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A of the Act.2. Tribunal's Error in Reducing the Penalty:The Tribunal had reduced the penalty imposed on the assessee, which was contested by the Central Excise Department. The Department argued that the Tribunal erred by not adhering to the mandatory nature of the penalty as established by the Supreme Court. The Tribunal's decision was challenged on the grounds that it did not consider the mandatory penalty provisions and the lack of discretion as interpreted in the aforementioned Supreme Court judgments.Counterarguments by the Assessee:The assessee's counsel referred to judgments from the Punjab & Haryana High Court, Uttaranchal High Court, and Gujarat High Court, which had declared the mandatory penalty provisions under Rules 96ZO, 96ZP, and 96ZQ as ultra vires Article 14 of the Constitution of India. These judgments emphasized the principle of proportionality, arguing that the imposition of a mandatory minimum penalty without any discretion or consideration of mens rea was excessive and unreasonable. The Punjab & Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. Vs. Union of India, and the Gujarat High Court in Krishna Processors Vs. Union of India, held that such provisions violated fundamental rights and were arbitrary.High Court's Conclusion:The High Court acknowledged the judgments of other High Courts that declared the rules ultra vires and noted that the Supreme Court had not yet decided on the Special Leave Petition against the Punjab & Haryana High Court's judgment. The High Court concluded that since the rules were declared ultra vires by competent High Courts, they could not be relied upon to impose penalties equal to the amount of duty for the relevant period.Final Judgment:The High Court decided in favor of the assessee, ruling that the imposition of penalties under the contested rules was not mandatory and that the Tribunal did not err in reducing the penalty. Consequently, all appeals by the Central Excise Department were dismissed, and the question of law was resolved in favor of the assessee.