1991 (9) TMI 93 - HC - Central Excise

No penalty under Additional Duties of Excise Act; Section 3(3) covers procedure only, Article 265 demands clear authority

HC held that the Additional Duties of Excise (Goods of Special Importance) Act contains no substantive provision authorizing imposition of penalty; the ... Interpretation of statute - levy and collect central excise - Penalty for non-compliance with obligations - penalty on tax was an interest on tax or an additional tax - violation of a statutory obligation - non-payment or delayed payment - HELD THAT:- We are of the opinion that there is no provision in the Additional Duties Act which creates a charge in the nature of penalty. We further find that the term 'levy and collection' in Section 3(3) of the Additional Duties Act has a restricted meaning in view of the use of the words 'including those relating to refund and exemptions from duty'. Otherwise these words were rather unnecessary. In Orissa Cement v. State of Orissa, [1970 (4) TMI 130 - SUPREME COURT], the question before the Supreme Court was whether rebate provided in Section 13(8) of the Orissa Sales Tax Act was available to dealers if they paid the tax under the CST Act before due date of payment. The court said that rebate for payment of tax within the prescribed time under the State Act was available to dealers for payment of tax under the CST Act on the reasoning that the power to collect the tax assessed in the same manner as the tax on the sale and purchase of goods under the general sales tax law of the State would include within itself all concessions given under the State Act for payment within the prescribed period. The Supreme Court in Khemka's case observed respecting this case that the reason why rebate was allowed and penalty was disallowed was that rebate was a concession whereas penalty was an imposition. The concession did not impose liability but penalty did. It, therefore, stood to reason that rebate was included within the procedural part of collection and enforcement of payment, and penalty like imposition of tax could not be included within the procedural part. We are, thus, of the opinion that the argument that various sections falling in Chapter II of the Central Excises Act which has the heading 'Levy and Collection' would all be construed as provisions for levy and collection of additional duty as well, is of no avail to the revenue and we reject this argument. In fact, as noted above, Chapter II contains no provision for levy of penalty. When penalty is additional tax, constitutional mandate requires a clear authority of law for imposition thereof. If long-drawn arguments are needed to explain if the Act by referential legislation or legislation by incorporation levies penalty or not, it is better for the court to lean in favour of the tax payer. There is no room for presumption in such a case. The mere fact that all these years the Additional Duty Act has not been challenged on this ground is of no consequence if authority of law as mandated by the Constitution is lacking. We may also note in the passing that it was submitted before us that penalty so realised earlier has never been distributed among the States as part of net proceeds of the collection of the additional duties of excise under the Additional Duties Act. This statement made at the Bar was not challenged. Since, however, this point was not raised in the writ petition and the revenue had no opportunity to reply in its counter-affidavit, we leave the matter at that. Levy of penalty which is an additional tax has to be under the authority of law which should be clear, specific and explicit. We find there is no mandate in the Additional Duties Act for levy of penalty and the Central Excises Act and the Rules made thereunder cannot be imported in the Additional Duties Act for the purpose of levy of penalty. We have spent anxious moments as the interpretation we have put has grave consequences for the revenue as similar terminology as used in Section 3(3) of the Additional Duties Act has been used in various Acts and other enactments, but then Article 265 of the Constitution mandates that no tax shall be levied and collected except by authority of law. There being no such authority of law to levy penalty, we have to hold so. Accordingly, these petitions are allowed to the extent that show cause notices calling upon the petitioners to show cause as to why (a) the plant, machinery, land and building utilised in the manufacture, etc. of the fabrics as aforesaid should not be confiscated to Government under Rule 173Q(2) of Central Excise Rules, 1944, and (b) penalties should not be imposed on them under Rules 9(2) and 173Q of the Central Excise Rules, 1944, are set aside. A writ of prohibition issued to the respondents restraining them from proceeding under the show cause notices for the purpose of confiscation and penalties as aforesaid. Issues Involved:1. Legality of invoking penal provisions of the Central Excise Rules under the Additional Duties Act.2. Constitutional validity of the Additional Duties Act.3. Jurisdiction of respondents to impose penalties and confiscate goods under the Central Excise Rules.4. Interpretation of the term 'levy and collection' under Section 3(3) of the Additional Duties Act.Summary:1. Legality of invoking penal provisions of the Central Excise Rules under the Additional Duties Act:The petitioners challenged the show cause notices issued by the Collector of Central Excise, questioning the legality of invoking penal provisions under the Central Excise Rules for infractions related to the Additional Duties Act. They argued that the Additional Duties Act does not provide for penalties, and the mere liability to duty cannot carry with it a liability to penalty. The court examined the relevant provisions and concluded that the term 'levy and collection' in Section 3(3) of the Additional Duties Act has a restricted meaning, and the provisions of the Central Excise Act and Rules regarding penalties cannot be applied to the Additional Duties Act.2. Constitutional validity of the Additional Duties Act:The petitioners also questioned the constitutional validity of the Additional Duties Act, but this challenge was not pressed. The court noted that the validity of the Act had already been upheld in a previous judgment (M/s. Parekh Prints and Others v. Union of India and Others) and that the special leave petition filed in the Supreme Court against that judgment had been dismissed.3. Jurisdiction of respondents to impose penalties and confiscate goods under the Central Excise Rules:The court addressed the question of whether the respondents have the jurisdiction to impose penalties and confiscate goods under the Central Excise Rules for defaults under the Additional Duties Act. It was argued that the Additional Duties Act does not create a charge for penalties, and the provisions of the Central Excise Act and Rules relating to penalties cannot be borrowed for this purpose. The court agreed with this argument, stating that there is no provision in the Additional Duties Act that creates a charge in the nature of a penalty.4. Interpretation of the term 'levy and collection' under Section 3(3) of the Additional Duties Act:The court examined the interpretation of the term 'levy and collection' under Section 3(3) of the Additional Duties Act. It was argued that this term includes both imposition of a tax and its quantification and assessment. However, the court held that the term has a restricted meaning in the context of the Additional Duties Act, and it does not cover penalties and offences. The court concluded that the provisions of the Central Excise Act and Rules regarding penalties cannot be applied to the Additional Duties Act.Conclusion:The court allowed the petitions to the extent that the show cause notices calling upon the petitioners to show cause for confiscation and penalties under the Central Excise Rules were set aside. A writ of prohibition was issued to the respondents restraining them from proceeding under the show cause notices for the purpose of confiscation and penalties. The rule was made absolute to this extent, and parties were ordered to bear their own costs.