2009 (5) TMI 11 - SC - Central Excise

Supreme Court Upholds Penalty Rule, Allows Discretion on Amount

The Supreme Court held that Rule 96ZQ(5)(ii) imposing a penalty equal to outstanding duty is valid, providing assessing authority discretion to levy a ... Constitutional validity of Rule 96ZQ(5)(ii) which stipulate that penalty equal to an amount outstanding at the end of the stipulated period was leviable – conflict of opinions between the judgments of the Division Bench of this Court - Division bench of SC in case of Dharmendra Textile, referred the matter to the larger Bench for its decision - three Judge Bench of this Court finally held that the impugned Rule 96ZQ is mandatory – consequently, challenge to the vires of Rule 96ZQ(5)(ii) in the Original Writ Petition before the High Courts stands revived – in view of above we remit this entire batch of Civil Appeals to the respective High Courts Issues:Challenge to the validity of Rule 96ZQ(5)(ii) - whether ultra vires the Constitution and legislative competence of Rule making authority.Analysis:The judgment dealt with the challenge to the validity of Rule 96ZQ(5)(ii) before the Supreme Court. The Rule in question imposed a penalty equal to the outstanding amount of duty at the end of a specified period. The Gujarat High Court had previously read down the Rule as not mandatory in a similar case. The Apex Court emphasized that the burden of proof lies with the registered dealer to show that non-submission of required statements was not to facilitate tax evasion. The Court clarified that the penalty prescribed by the Rule is the maximum amount and the assessing authority has discretion to levy a lesser amount based on the circumstances of each case. The Court held that the Rule should be interpreted as containing a rebuttable presumption, and the decision of the High Court declaring it ultra vires was not sustainable.The judgment referred to a previous case involving conflicting opinions, leading to a referral to a larger Bench. The Court highlighted the civil nature of the penalty under the relevant section and the strict liability on the assessee for concealment or inaccurate particulars in filings. The judgment emphasized the need for a thorough examination of the record before imposing penalties for concealment. The Court acknowledged the need for reconsideration of previous judgments in light of the provisions of the Income Tax Act and Central Excise Act, indicating the broader implications of the decision.Subsequently, a three-Judge Bench clarified the controversy by ruling that Rule 96ZQ is mandatory. This decision revived the challenge to the vires of Rule 96ZQ(5)(ii) in the original Writ Petition before the High Courts. As a result, the Supreme Court remitted the Civil Appeals to the respective High Courts for further consideration on the validity of the sub-rule. Both parties were granted liberty to amend their petitions and complete their pleadings promptly before the High Courts. Finally, the Civil Appeals were disposed of accordingly, allowing the High Courts to decide on the vires of the impugned sub-rule.