2025 (9) TMI 1155 - HC - Central Excise

Redemption fines treated as consequences of unpaid excise duty; waived under SVLDR Scheme upon payment and discharge certificate

JV Industries Pvt Ltd Versus Union Of India & Ors.

HC held that a redemption fine imposed for release of seized goods is a consequence of non-payment of excise duty and not a separate category of penalty ... Refund of amount of redemption fine recovered by partially liquidating the Petitioner's Bank Guarantee - whether redemption fine is to be considered as part of duty, penalty or the amount eventually payable and is hence, covered by the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDR Scheme) or not? - HELD THAT:- A perusal of the provisions of the Central Excise Act, 1944 would show that whenever there is confiscation due to non-payment of excise duty, seizure of relevant material can be done under Section 12F and a fine would have to be paid by the tax payer for release of the goods which have been confiscated. Such a fine is called the redemption fine. Hence, the seizure and/or redemption fine is nothing but a consequence of non-payment of excise duty. The same cannot be considered as a separate category of penalty, insofar as the applicability of the SVLDR Scheme is concerned - Under the SVLDR Scheme, Section 124 provides that only the part of the excise duty has to be paid, depending upon the amount of tax due. Hence, the same can be either 40%, 50%, 60% or 70% of the tax dues and there is no requirement to pay either the balance tax alongwith penalty or any interest. The scheme of the Central Excise Act, 1944 reveals that whenever there is non-payment of excise duty in respect of any goods, there can be various consequences. There can be seizure of goods and/or relevant material, a redemption fine can be imposed for release of goods. Such seizure or imposition of redemption fine, is nothing but a fine being paid due to non- payment of duty. Once the duty itself gets settled under the SVLDR Scheme, it would not be appropriate to interpret the Scheme in a manner that would be contrary to the intention thereof - The discharge certificate that is to be issued by the Department upon payment of duty in terms of the scheme is for waiver of entire duty, interest or penalty and redemption fine would be part of these three terminologies, as has been rightly interpreted by the CBIC itself in its flyer and FAQs. This Court is of the opinion that when penalties and interest are being waived under the SVLDR Scheme but the redemption fine is not waived, as is being argued by the Respondents, such an interpretation would go contrary to the fundamental purpose and the raison d'être of the SVLDR Scheme itself. In the opinion of this Court, the purpose of the SVLDR Scheme is to give a finality to a particular dispute and not to keep the aspect relating to redemption fine pending. Seizure cases are also no exception to this. The redemption fine would be waived, once a tax payer has availed of the benefits of the SVLDR Scheme and has paid the amount in terms thereof. Once the payment is made, benefits of the Scheme would also extend to Seizure/Confiscation cases. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether 'redemption fine' imposed under Section 34 of the Central Excise Act, 1944 in lieu of confiscation is covered within the scope of 'duty', 'penalty' or 'amount payable' under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDR Scheme). 2. Whether a declarant who pays the prescribed percentage of 'tax dues' under Section 124 of the SVLDR Scheme and fulfils other conditions is entitled to a discharge certificate under Section 127(8)/129 such that any redemption fine relating to the declared dispute is waived and refundable if already recovered. 3. Whether the Department can require the separate payment of redemption fine or encash security/make recoveries for redemption fine despite acceptance of an SVLDR declaration and payment of the amount computed under the Scheme. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether redemption fine falls within 'duty', 'penalty' or 'amount payable' under the SVLDR Scheme Legal framework: Definitions in the SVLDR Scheme: 'amount in arrears' (Section 121(c)), 'amount of duty' (Section 121(d)), 'tax dues' (Section 123), relief computation (Section 124) and effect of discharge certificate (Sections 127(8) and 129(1)). Central Excise Act provisions: Section 12F (search and seizure) and Section 34 (option to pay fine in lieu of confiscation). Precedent treatment: Multiple High Court decisions (including Allahabad, Gujarat, Punjab & Haryana, Bombay, and coordinate benches of this Court) have held that redemption fine is akin to a penalty or is part of the duty/penalty consequences arising from non-payment of excise, and thus falls within the Scheme's relief; some authorities take a stricter textual view that the Scheme should not be expanded beyond its unambiguous terms. Interpretation and reasoning: Section 34 of the Central Excise Act makes redemption fine the payment in lieu of confiscation; confiscation is characterised as a penalty in rem. The SVLDR Scheme waives duty, interest and penalty and contemplates relief in respect of 'tax dues' defined by reference to 'amount of duty'. The Scheme's objectives are to resolve legacy disputes and give finality. The CBIC's contemporaneous explanatory material (flyers/FAQs/press releases) described benefits as 'total waiver of interest, penalty and fine'. Where the statutory scheme does not expressly exclude redemption fine from 'penalty' and where redemption fine is a statutory consequence of non-payment of duty/confiscation, it is reasonable to include redemption fine within the Scheme's ambit to effectuate the Scheme's object of finality. Ratio vs. Obiter: Ratio - redemption fine imposed under Section 34 is a statutory consequence of non-payment of duty and constitutes a species of penalty or part of the amount recoverable in connection with duty/confiscation, and therefore is covered by the Scheme's waiver of penalty/interest on settlement under Sections 124/129. Obiter - observations on CAF materials' persuasive force where statutory language is plain (noting that contemporanea expositio aids interpretation but yields to clear statutory language). Conclusions: Redemption fine is not a separate, excluded category and falls within 'penalty' (and thus the relief conferred by the SVLDR Scheme) so long as the dispute and time period are covered by the declarant's SVLDR filing and the declarant meets Scheme conditions. Issue 2 - Effect of payment under Section 124 and issuance of discharge certificate under Sections 127/129 on redemption fine Legal framework: Section 124 prescribes relief amounts calculated on 'tax dues'; Section 127(8) mandates issuance of discharge certificate on payment and proof of withdrawal of appeal; Section 129(1) makes the discharge certificate conclusive and provides that the declarant 'shall not be liable to pay any further duty, interest, or penalty with respect to the matter and time period covered in the declaration'. Section 124(2) deducts prior pre-deposits but precludes refunds if pre-deposits exceed amount payable. Precedent treatment: Courts have interpreted Section 129(1)(a) to include redemption fine as falling within 'any further duty, interest or penalty' or otherwise within the Scheme's waiver of penalty/fine where the Scheme's promotional material and contemporaneous explanations indicated waiver of fine; coordinate and higher courts have directed that discharge certificates be issued without requiring separate payment of redemption fine once Scheme payment is made. Interpretation and reasoning: The Scheme entitles a declarant who pays the prescribed percentage of tax dues to a discharge certificate which, by Section 129(1)(a), bars further liabilities for duty, interest or penalty for the covered period. Redemption fine arises from the same transaction/period and is imposed as a consequence of non-payment of duty; therefore the discharge certificate's bar on further duties/penalties operates to extinguish redemption fine liability. Denying waiver of redemption fine undermines the Scheme's object of finality and contradicts CBIC's published explanation and judicial pronouncements treating redemption fine as encompassed by the Scheme. Ratio vs. Obiter: Ratio - payment of the Scheme-prescribed amount and fulfilment of conditions requires issuance of a discharge certificate that extinguishes liability for redemption fine related to the declared matter/time period; such fine need not be separately paid to obtain discharge. Obiter - remarks on the technical distinction between 'amount of duty' and 'redemption fine' in varied fact patterns where definitions of 'amount in arrears' vs 'tax dues' may operate differently. Conclusions: Once the Scheme payment is made and conditions met, the designated committee must issue the discharge certificate and the declarant is relieved of redemption fine liability relating to the declared dispute and period; any redemption fine recovered thereafter must be refunded with statutory interest where recovery occurred despite an entitlement to discharge. Issue 3 - Legality of Departmental requirement for separate payment/encashment of bank guarantee for redemption fine despite SVLDR declaration Legal framework: Section 127(8) duty to issue discharge certificate within 30 days on payment and proof of withdrawal; Section 129 conclusive effect of discharge certificate; Central Excise law authorising encashment/appropriation of securities for duties/fines. Precedent treatment: Courts have quashed departmental refusals to consider SVLDR declarations or to demand redemption fine payment as prerequisite; higher courts have accepted that departmental actions demanding separate payment/encashment are contrary to Scheme objects and judicial decisions have ordered refunds where encashment occurred despite entitlement to discharge. Interpretation and reasoning: When the declarant has complied with SVLDR conditions and the Scheme entitles waiver of redemption fine, departmental action to encash bank guarantee or demand separate payment is inconsistent with Sections 127/129. The Department's position that redemption fine is a separate category not covered by the Scheme is unsustainable where precedent and Scheme materials justify inclusion; estoppel-type arguments or alleged concessions by declarants cannot oust statutory Scheme rights. Where encashment occurred contrary to declarant's entitlement to discharge, refund with statutory interest is warranted. Ratio vs. Obiter: Ratio - departmental encashment of security or refusal to issue discharge certificate on the ground that redemption fine remains unpaid is unlawful where the declarant has validly availed SVLDR relief that covers the relevant duty/penalty/fine; such recovered amounts must be refunded with statutory interest. Obiter - observations on administrative strictness in other schemes and that unambiguous statutory exclusion would defeat this result (not present here). Conclusions: The Department cannot insist on separate payment of redemption fine or appropriate security where the declarant is otherwise entitled to discharge under the SVLDR Scheme; recoveries made in contravention of the Scheme and judicially-held interpretation must be refunded with interest and the discharge certificate issued within prescribed timeframes. Final operative conclusions adopted by The Court 1. Redemption fine constitutes a statutory consequence of non-payment of excise duty and is encompassed within the SVLDR Scheme's waiver of penalty/interest/fine when the dispute and time period are covered by the declaration and conditions of the Scheme are met. 2. A declarant who pays the prescribed amount under Section 124 and complies with other conditions is entitled to a discharge certificate under Section 127(8)/129 and is not liable to pay redemption fine relating to the declared matter and period; departmental refusal to so relieve or encashment of bank guarantee for redemption fine is not sustainable. 3. Where redemption fine has been encashed in breach of the Scheme entitlement, the Department must refund the recovered amount with statutory interest and issue the discharge certificate within a reasonable period consistent with the Scheme (as directed by The Court).