Penalty under excise and income-tax law must be reconsidered on mens rea, with the issue referred to a larger bench.

Section 11AC of the Central Excise Act and Rule 96ZQ(5) of the Central Excise Rules were examined on whether mens rea is necessary for penalty. The Court compared these provisions with Section 271(1)(c) of the Income-tax Act and treated them as part of a common penal scheme for concealment, suppression, or default, indicating a civil liability and strict liability approach. It held that the earlier view requiring mens rea needed reconsideration in light of contrary authority and statutory explanations. The matter was referred to the Chief Justice of India for placement before a larger bench, and no final ruling was given on the substantive penalty question.

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Issues: Whether Section 11AC of the Central Excise Act and Rule 96ZQ(5) of the Central Excise Rules require mens rea as an essential ingredient for levy of penalty, and whether the view taken in the earlier income-tax penalty decision required reconsideration by a larger bench.

Analysis: The decision compared the scheme of penalty under Section 271(1)(c) of the Income-tax Act, Section 11AC of the Central Excise Act and Rule 96ZQ(5) of the Central Excise Rules, and treated them as part of a common legislative scheme for penal consequences in cases of concealment, suppression or default. It held that the earlier view insisting on mens rea required reconsideration in light of the contrary line of authority and the statutory explanations indicating a civil liability and strict liability approach. The Court also noted that the challenge to the vires of Rule 96ZQ(5) could survive if the larger bench were to uphold mandatory penalty under the rule.

Outcome: The matter was referred to the Chief Justice of India for placement before a larger bench, and no final ruling on the substantive penalty question was rendered.

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