2017 (8) TMI 1479 - HC - VAT and Sales Tax

Court Upholds Penalties Under Rule 14(2)

M/s. High Point Hotels Pvt. Ltd., Versus The Excise Commissioner in Karnataka and others

The court upheld the imposition of penalties under Rule 14(2) for the period it was in force, despite its later omission. It rejected arguments ... Levy of Penalty under Rule 14 (2) of the Karnataka Excise (Sale of Indian and Foreign Liquor) Rules, 1968 - penalty imposed for the short-lifting of the liquor during the period in question. Whether it’s “omission” or “repeal” with effect from 01.08.2014 divests the Excise Authorities to invoke the said Rule and demand the penalty/damages for short lifting of the liquor from the State Board Corporation for the period when the said Rule-14(2) on the Statute Book, between 01/04/2003 to 01/08/2014? Held that:- The said contention is fallacious and not sustainable. Rule 132-A of the Defence of India Rules, 1962, relating to prosecution was omitted and Rule 10 and 10-A in the Central Excise Rules relating to recovery of excess refund or rebate was omitted - such omission of enactment would also amount to ‘repeal’ and Section 6 of the General Clauses Act would apply and save the action taken under the repealed provision. Levying of penalty/damages under Rule 14(2) of the State Excise Rules, 1968 in question, as contended by Mr.K.P.Kumar himself is that the said Rule is a charging provision and except the said Rule, there was no other provision for imposing the said penalty/damages for short lifting of liquor quantity. If it is a charging provision, as it appears to be, there is no reason to treat the ‘Rule’ 14(2) as anything different from a ‘Section’ or ‘enactment’ or a ‘provision’ covered by the scope of Section 6 of the General Clauses Act, 1897 - In 1897, when India was not independent and no ‘Rules’ under delegated powers to the State Government were framed at that time therefore absence of word ‘Rule’ in Section 6 of the General Clauses Act, 1897 in the context of situation then obtaining should not allow the levy of Penalty/damages under Rule like Rule 14 (2) of present Excise Rules to lapse by holding that Section 6 of the General Clauses Act does not apply to Rules. It is only after the State Re-organization Act, 1956 that States in India started enacting such Rules under their delegated powers under the relevant Acts. Merely because it is a ‘Rule’ enacted by the State Legislature under the delegated powers under Section 71 of the Karnataka State Excise Act, 1965, it does not lose the legislative sanction and sustainability as a charging provision and its omission or repeal cannot deprive the Respondents-Excise Department to invoke and apply this provision by virtue of Section 6 of the General Clauses Act for demanding the penalty/damages for the short lifting of the liquor, for the period during which the said Rule 14 (2) existed on the Statute Book. The same will be clearly saved by virtue of Section 6 of the General Clauses Act, 1897 enacted much prior to independence of India even though the word ‘Rule’ is not separately mentioned in Section 6 of the Act. The contention of petitioner is held to be devoid of merit and the action of the Respondents-Excise Department for demand of such penalty/damages for compensating the loss of revenue caused to the State by such short lifting of liquor quantity cannot be held to be without jurisdiction or illegal. It would be appropriate here to consider the judgment of the Hon’ble Supreme Court in the case of M/s. Guljag Industries Vs. Commercial Tax Officer and others [2007 (8) TMI 344 - SUPREME COURT] wherein the Hon’ble Supreme Court dealing with the case of levy of Penalty from the Consignors or Consignee or even Transporters for not carrying on Declaration Form prescribed under the provisions of Section 78(2) of the Rajasthan Sales Tax Act for regulating the checking of the Transit movement of goods for sale. The premise of Rule 14 (2) for recovering ‘Loss of Revenue” to State caused by short lifting of liquor quantity, is in corollary to ‘Penalty’ recovered under Rule 21 (5) of MMDR (Mine & Mineral Development Regulations), in the case of COMMON CAUSE VERSUS UNION OF INDIA AND ORS. AND PRAFULLA SAMANTRA AND ANR. VERSUS UNION OF INDIA AND ORS [2017 (8) TMI 1446 - SUPREME COURT OF INDIA], relying upon its previous decision in the case of Karnataka Rare Earth case [2004 (1) TMI 686 - SUPREME COURT] held that such compensation to State should be fully recovered even if illegal mining of ore, was done on any land, even if not covered by mining lease or Mining Plan. This judgment is on all fours to the present case. This Court is further of the view that the said fiscal liability in the name of Penalty under Rule 14 (2) of the Excise Rules of 1968 is actually the price or the liquidated damages to be paid by the Excise Licencees or vendors of liquor for the breach of contract on their part for short-lifting of the prescribed quantity of liquor from the State Beverage Corporation. That is why there is no need to go into the question of mens rea or opportunity of hearing or raising an objection in that regard - This Court also does not find any merit in the contention No.III that measure of Penalty under Rule 14 (2) cannot be assailed on different price range for different types of liquor. It is for the Legislature to adopt such measure and no illegality or arbitrariness is seen in such a measure adopted in Rule 14(2) in the present case. This Court is of the view that while upholding the levy, about its mathematical computation and assessment, the petitioners can be given even now an opportunity of hearing. Therefore, the Respondent authorities are directed to pass speaking adjudication orders, in cases where Objections are now filed about the quantum of penalty and damages under Rule 14 (2) of the Excise Rules of 1968, within a period of one month from today - Petition disposed off. Issues Involved:1. Imposition of Penalty under Rule 14(2) of the Karnataka Excise (Sale of Indian and Foreign Liquor) Rules, 1968.2. Validity of proceedings initiated after the deletion of Rule 14(2).3. Requirement of opportunity of hearing before imposing the penalty.4. Justification of the fixed penalty rate of Rs. 100 per bulk litre.5. Applicability of Section 6 of the General Clauses Act, 1897 to the omitted Rule 14(2).Analysis:1. Imposition of Penalty under Rule 14(2) of the Karnataka Excise (Sale of Indian and Foreign Liquor) Rules, 1968:The controversy centers around the imposition of a penalty for short-lifting liquor from the Karnataka State Beverages Corporation Limited (KSBCL) as prescribed under Rule 14(2) of the Excise Rules of 1968. This rule, effective from 01/04/2003, was omitted on 01/08/2014. The penalty, considered a fiscal liability, is applicable for periods when the rule was active.2. Validity of Proceedings Initiated After the Deletion of Rule 14(2):The petitioners argued that the proceedings for penalty recovery initiated after the deletion of Rule 14(2) on 01/08/2014 are invalid. They cited Supreme Court decisions in M/s. Rayala Corporation (P) Ltd. and Kolhapur Canesugar Works Ltd., which held that proceedings could not continue after the repeal of the relevant rule. However, the court distinguished these cases, noting that the penalty under Rule 14(2) is compensatory, not penal. The court also referred to later judgments in Fibre Boards Private Limited and Shree Bhagwati Steel Rolling Mills, which clarified that omissions could be treated as repeals, thereby invoking Section 6 of the General Clauses Act, 1897, to save actions taken under the repealed provision.3. Requirement of Opportunity of Hearing Before Imposing the Penalty:The petitioners contended that the penalty notices were issued without a hearing, which is essential due to the various factors affecting short-lifting. The court held that the penalty under Rule 14(2) does not require mens rea or guilty animus, as it is a fiscal liability to compensate for revenue loss due to short-lifting. The court emphasized that the opportunity of hearing is more relevant when the consequence is license cancellation, not merely the imposition of a penalty.4. Justification of the Fixed Penalty Rate of Rs. 100 per Bulk Litre:The petitioners argued that the fixed penalty rate of Rs. 100 per bulk litre is unjustified as it does not account for the varying costs of different liquors. The court dismissed this argument, stating that the legislature's chosen measure is not arbitrary or illegal. The penalty rate is within the legislative domain and is intended to ensure compliance and prevent the sale of illicit liquor.5. Applicability of Section 6 of the General Clauses Act, 1897 to the Omitted Rule 14(2):The court extensively discussed the applicability of Section 6 of the General Clauses Act, 1897, which saves actions taken under a repealed provision unless a different intention appears. The court concluded that the omission of Rule 14(2) is equivalent to a repeal, thereby invoking Section 6 to validate the proceedings for penalties related to periods when the rule was active. The court cited recent judgments affirming this interpretation and dismissed the petitioners' reliance on earlier contrary decisions.Conclusion:The court upheld the imposition of penalties under Rule 14(2) for the period it was in force, despite its later omission. It rejected the petitioners' arguments regarding the need for a hearing, the fixed penalty rate, and the invalidity of proceedings initiated post-omission. The court directed that objections to the quantum of penalties could be filed within one month, with the authorities required to pass speaking orders within two months thereafter. The petitions were dismissed with no order as to costs.