TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 202
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....e CCI, inter alia, upheld the demand of interest on the penalty amounts with retrospective effect, i.e., from 10.12.2018 till the date of payment, as conveyed through demand notices dated 09.05.2023 issued to the Respondents under the Competition Commission of India (Manner of Recovery of Monetary Penalty) Regulations, 2011 [2011 Regulations]. The underlying penalties had earlier been imposed under Section 27 of the Competition Act, 2002 [Competition Act], vide the CCI's Order dated 30.08.2018. BRIEF FACTS: 3. Proceedings under the Competition Act were initiated against Respondent No. 1, Geep Industries (India) Pvt. Ltd., and Respondent Nos. 2 to 4, who are the Directors of Respondent No. 1. 4. Upon completion of inquiry, the Appellant vide Order dated 30.08.2018, found the Respondents guilty of engaging in cartelization in the Dry Cell Batteries market in India, in violation of the provisions of Section 3(3)(a) read with Section 3(1) of the Competition Act. 5. Consequently, the Respondents were directed to cease and desist from such anti-competitive conduct, and monetary penalties were imposed under Section 27(b) of the Competition Act. A penalty of Rs. 9,64,06,682/- w....
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....cy of an appeal. 11. Aggrieved by the said Order, the Respondents preferred W.P.(C) No. 10332/2023 before the learned Single Judge of this Court. 12. By the Impugned Judgment dated 26.04.2024, the learned Single Judge allowed the Writ Petition, holding that the issuance of a demand notice in the prescribed form under the 2011 Regulations is a mandatory precondition before any interest can be levied. Accordingly, the learned Single Judge set aside the CCI's Order dated 18.07.2023 to the extent it imposed interest on the penalty amounts from 10.12.2018. 13. The CCI, being aggrieved by the said Impugned Judgment, has preferred the present Appeal before this Court. SUBMISSIONS OF THE APPELLANT/ CCI: 14. Learned ASG appearing for the Appellant-CCI would submit that the Impugned Judgment, passed by the learned Single Judge, is erroneous in law and requires interference, as it misinterprets the provisions of the 2011 Regulations, particularly Regulations 3 and 5. 15. It would be further submitted by the learned ASG that the learned Single Judge failed to appreciate that the provisions of the Competition Act are sui generis in nature and cannot be compared with taxation s....
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....ng such notices was a direct result of the judicial order; consequently, this inability should not have been held against the Appellant but should have been viewed in its favour, since the non-issuance arose from judicial restraint rather than administrative omission. 21. The learned ASG further argued that the principle of restitution fully applies in the present case, and therefore, upon vacation of the stay orders, the CCI ought to be restored to the position it would have occupied had the stay not operated, thereby entitling it to recover interest on the penalty amount in accordance with the 2011 Regulations and for this reliance would be placed on the judgment of the Hon'ble Supreme Court in State of Rajasthan v. J.K. Synthetics Ltd. (2011) 12 SCC 518. SUBMISSIONS OF THE RESPONDENTS: 22. Learned counsel for the Respondents would submit that interest on any penalty amount can be levied only in accordance with the 2011 Regulations, and that unless the procedures laid down therein are strictly followed, the Appellant-CCI has no authority to direct payment of interest on any delayed payment of penalty. 23. Learned counsel for the Respondents would further contend that ....
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....where a penalty has been imposed on an enterprise by the Commission, then the Commission shall issue a demand notice as set out in Form-I appended to the regulations. A perusal of Regulation 3 read with Form-I postulates that a person against whom penalty has been imposed has to be first informed regarding levy of penalty. This Form-I is to be issued regardless the person against whom a penalty has been imposed was present during the hearing or at the time of final order was passed. Form-I specifies the correct amount of penalty that is due and payable by the person against whom the penalty has been imposed and the amount which has become due and payable. Form-I also specifies that in case a person fails to deposit the amount of penalty within the time stipulated, he shall be liable to pay simple interest @ 1.5% for every month or part of a month comprised in the period commencing from the date immediately after the expiry of the period mentioned in the demand notice and ending with the date on which the amount is paid. The said stipulation was introduced in Form-I on 25.06.2014. The specific insertion of the said clause intimating that the interest is due and payable on failure to....
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.... 156 provides for a vital step to be taken by the Assessing Officer without which the assessee cannot be termed a defaulter. The use of the term "shall" in Section 156 implies that service of demand notice is mandatory before initiating recovery proceedings and constitutes foundation of subsequent recovery proceedings. 15. We have already stated that the finding of fact recorded by CIT (Appeals) and the Tribunal was that notice of demand was not served on the assessee. The very foundation for initiating the recovery proceedings, therefore, was non-existent and the assessee could neither have been deemed to be in default nor any proceedings for recovery of tax could have been initiated against him. XXX 17. In Homely Industries v. STO [(1976) 3 SCC 705 : 1976 SCC (Tax) 383 : (1976) 37 STC 483] also the significance of service of demand notice came up for the consideration of this Court and it was held that there can be no recovery without service of a demand notice; if such notice was not served, the recovery proceedings are not maintainable in law and are invalid and the same along with the recovery certificates are liable to be quashed. 18. In Ra....
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.... that before issuing any process for recovery of arrears of land revenue the Tahsildar or Naib Tahsildar may cause a notice of demand to be served on any defaulter. Chief Justice P.V. Dixit speaking for the Division Benches, in all the three cases, has held that the word "may" has the imperative meaning of "shall" and no proceedings for recovery can be initiated without service of notice of demand failing which the proceedings would suffer from jurisdictional defect. For a long period of time the High Court of Madhya Pradesh has been taking this view consistently." 18. Similarly, the Apex Court in State of Kerala v. Joy Varghese, Kerala Rubber Products, (1999) 9 SCC 124 has observed as under: "2. Having regard to the phraseology of Section 23(3) of the Kerala General Sales Tax Act, the liability of the dealer to pay penal interest on the tax assessed or any other amount due under that Act arises only if such tax or amount is not paid "within the time specified therefor in the notice of demand". There being no notice of demand, it was held that the liability to pay penal interest did not arise. It is necessary to emphasise that this is not a case of payment of inte....
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....79 : (1955) 27 ITR 20] and Gursahai Saigal v. CIT, Punjab [(1963) 3 SCR 893 : AIR 1963 SC 1062 : (1963) 48 ITR 1]). But it must also be realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. (See Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji [AIR 1938 PC 67: 65 IA 66: 67 CLJ 153] and Union of India v. A.L. Rallia Ram [(1964) 3 SCR 164, 185-90: AIR 1963 SC 1685]). Our attention was, however, drawn by Mr Sen to two cases. Even in those cases, CIT v. M. Chandra Sekhar [(1985) 1 SCC 283 : 1985 SCC (Tax) 85 : (1985) 151 ITR 433] and Central Provinces Manganese Ore Co. Ltd. v. CIT [(1986) 3 SCC 461 : 1986 SCC (Tax) 601 : (1986) 160 ITR 961], all that the Court pointed out was that provision for charging interest was, it seems, introduced in order to compensate for the loss occasioned to the Revenue due to delay. But then interest was charged on the strength of a statutory provision, may be its ....
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....in, we find ourselves in complete agreement with the views expressed by the learned Single Judge in the Impugned Judgment. 29. Before delving into the factual matrix of the present case, it is important to note the relevant provisions of the 2011 Regulations. These regulations were framed under the powers conferred by Section 64(2)(g), read with Sections 36 and 39(1) of the Competition Act. Section 36 empowers the CCI to regulate its own procedure, while Section 39(1) provides that where a person fails to pay any monetary penalty imposed under the Act, the CCI shall recover such penalty in the manner prescribed by the regulations. The relevant provisions of the 2011 Regulations are reproduced below for ready reference: "(c) "demand notice" means a notice issued by the Commission to an enterprise from whom any penalty is recoverable under the Act; (e) "enterprise in default" means an enterprise which has not paid the penalty imposed on it within the stipulated time despite the demand notice duly served upon; (g) "penalty" means a monetary penalty or fine or any other sum imposed by the Commission and realisable under the Act; 3. Issuance of dem....
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....rprise concerned if it is satisfied that default in the payment of such amount was due to circumstances beyond the control of the enterprise concerned: Provided further that where as a result of an order of the Competition Appellate Tribunal or the High Court or the Supreme Court of India, as the case may be the amount of penalty payable has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded in accordance with regulation 14." 30. A plain reading of Regulation 3 reveals that whenever the CCI imposes a monetary penalty on an enterprise, a formal demand notice is required to be issued through the Recovery Officer in Form I, after the expiry of the period specified in the penalty order. The Regulation further provides that the enterprise shall ordinarily be granted a period of 30 days from the date of service of the demand notice to deposit the penalty amount in the prescribed manner. Notably, Regulation 3(2) unambiguously stipulates that the 30-day period commences "from the date of service of the demand notice to the enterprise", which emphasizes that computation of time begins only upon such service. 31. Mor....
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.... recovery, and regulation of monetary penalties under the Competition Act. 35. Now turning to the facts of the present case, it is an admitted fact that the CCI never issued a notice to the Respondents in Form I, as mandated under Regulation 3 of the 2011 Regulations, before imposing the interest upon the penalty. As noted earlier, Regulation 3(2) categorically provides that the 30-day period for payment shall begin "from the date of service of the demand notice to the enterprise." 36. Once it stands established that no demand notice was ever issued to the Respondents, the question of any default in payment does not arise. Regulation 5 of the 2011 Regulations, which provides for the imposition of interest "if the amount specified in the demand notice is not paid within the period specified by the Commission", can operate only when a valid and duly served demand notice, as required under Regulation 3, exists in respect of a recoverable penalty. Regulation 5 further clarifies that "the enterprise concerned shall be liable to pay simple interest at one and one half per cent, for every month or part of a month comprised in the period commencing from the day immediately after the ....
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....dress known to the Commission. (2) A demand notice issued under sub-regulation (1) shall provide a time period of not less than 60 (sixty) days from the date of receipt of order of the Commission to the enterprise or person concerned, to deposit the penalty in the manner specified in the said notice. (3) Upon receipt of the demand notice, the enterprise or the person, as the case may be, shall pay the penalty, through challan as set out in Form II appended to these regulations, in favour of the Pay & Accounts Officer (PAO), Ministry of Corporate Affairs, Head No. 1475.00.105.05, [Sub-Head - 00] - 'Penalties imposed by Competition Commission of India'. (4) One copy of the challan shall be submitted by the enterprise or the person, as the case may be, to the recovery officer immediately but not later than 07 (seven) days of the payment and the recovery officer shall make an entry in the penalty recovery register to the same effect. (5) The Commission may, at any time, rectify any clerical or arithmetical mistake made in the demand notice. 5. Interest on penalty. If the amount specified in the demand notice is not paid within the p....
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.... accrual mechanism in the amended Act. The absence of such a provision clearly militates against the interpretation advanced by the CCI. 43. We are also of the firm opinion that any attempt by the CCI to impose interest retrospectively, or without compliance with the prescribed statutory procedure, would not merely constitute a procedural irregularity but a substantive violation of constitutional guarantees under Articles 14, 19, 21, 265, and 300A of the Constitution of India. These provisions collectively safeguard individuals and enterprises from arbitrary or excessive executive action, ensure fairness and non-discrimination in administrative processes, and prohibit the imposition or collection of any tax, duty, or charge except by the authority of law. The levy of interest without the statutory foundation of a valid demand notice would, therefore, offend both the rule of law and the constitutional prohibition against deprivation of property without valid authority of law. 44. We are in complete agreement with the view taken by the learned Single Judge, which, by now, is no longer res integra, that the well-established maxim expressio unius est exclusio alterius squarely ap....
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....dural safeguards intended by the legislature. 49. In this context, reference to the decision of the Hon'ble Supreme Court in Excel Crop Care Ltd. v. CCI (2017) 8 SCC 47 is apposite, as the Apex Court made certain significant observations while considering the construction of penal provisions under the Competition Act. The relevant excerpt of the said judgment is reproduced below: "65. In the aforesaid backdrop, the moot question is as to whether penalty under Section 27(b) of the Act has to be on "total/entire turnover" of the company covering all the products or it is relatable to "relevant turnover" viz. relating to the product in question in respect whereof provisions of the Act are contravened. Section 27 of the Act stipulates nature of the orders which CCI can pass after enquiry into agreements or abuse of dominant position. This section empowers CCI to pass various kinds of orders the nature whereof is spelt out in clauses (a), (b), (d) and (g) [clauses (c) and (f) stand omitted]. As per clause (b), CCI is empowered to inflict monetary penalties, the upper limit whereof is 10% "of the average of turnover for the last three preceding financial years". Operative por....
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....d extent "of the contravention", the loss or damage suffered as a result, of "the contravention" the market circumstances in which "the contravention" took place and the level of profit derived from "the contravention". Thus there is a legislative link between the damage caused and the profits which accrue from the cartel activity. The inquiry, in terms of Section 59(20), appears to envisage that consideration be given to the benefits which accrue from the contravention; that is to amount to affected turnover. By using the baseline of affected turnover, the implications of the doctrine of proportionality that is between the nature of the offence and benefit derived therefrom, the interests of the consumer community and the legitimate interests of the offender can be taken more carefully into account and appropriately calibrated." (emphasis supplied) 81. The judgment in Southern Pipeline Contractors v. Competition Commission, 2011 SCC OnLine ZACAC 5 reveals that the Court therein was concerned with the provisions of Section 59 of the Competition Act, 1998 of South Africa which also provides for maximum penalty of 10% of the annual turnover. The Court held that the ....
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.... 85. Interpretation which brings out such inequitable or absurd results has to be eschewed. This fundamental principle of interpretation has been repeatedly made use of to avoid inequitable outcomes. The Canadian Supreme Court in Canadian Pacific Ltd. v. Ontario, 1995 SCC OnLine Can SC 62, wherein the expression "use" occurring in the Environment Protection Act was given restricted meaning. The principle that absurdity should be avoided was explained in the following manner: (SCC OnLine Can SC paras 16-21) The expression "for any use that can be made of [the natural environment]" has an identifiable literal or "plain" meaning when viewed in the context of the EPA as a whole, particularly the other clauses of Section 13(1). When the terms of the other clauses are taken into account, it can be concluded that the literal meaning of the expression "for any use that can be made of [the natural environment]" is "any use that can conceivably be made of the natural environment by any person or other living creature". In ordinary circumstances, once the "plain meaning" of the words in a statute have been identified there is no need for further interpretation. Different considerati....
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....of law, it is for the legislature to amend, modify or repeal it, if deemed necessary. (See CST v. Popular Trading Co. [CST v. Popular Trading Co., (2000) 5 SCC 511]) The legislative casus omissus cannot be supplied by judicial interpretative process." 87. Likewise, the following passages from the judgment of this Court in CIT v. J.H. Gotla, (1985) 4 SCC 343: 1985 SCC (Tax) 670 shed light of similar nature: (SCC pp. 359-60, paras 45-47) "45. In K.P. Varghese v. ITO, (1981) 4 SCC 173: 1981 SCC (Tax) 293 this Court emphasised that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. 46. Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the legislature, the Court might modify the language used by the legislature so as to achieve the intention of the legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the legislature from the language used. It is necessary to remember that language is at best an imperfect instrument for the expression....
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....intent and purpose of the statutory provision. In that context, the learned Judge has referred to the authority in State of T.N. v. Kodaikanal Motor Union (P) Ltd., (1986) 3 SCC 91 wherein this Court after referring to K.P. Varghese v. ITO, (1981) 4 SCC 173 and Luke v. IRC, 1963 AC 557 has observed: Oxford University Press v. CIT, (2001) 3 SCC 359, SCC p. 376, para 33) "33. ... '17. The courts must always seek to find out the intention of the legislature. Though the courts must find out the intention of the statute from the language used, but language more often than not is an imperfect instrument of expression of human thought. As Lord Denning said [Ed.: The reference is to Seaford Court Estates Ltd. v. Asher, (1949) 2 KB 481 (CA)] it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity. As Judge Learned Hand said [Ed.: The reference is to Cabell v. Markham, 148 F 2d 737 at p. 739 (2d Cir 1945), we must not make a fortress out of dictionary but remember that statutes must have some purpose or object, whose imaginative discovery is judicial craftsmanship. We need not always cling to literalness and should seek to endeav....
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....017) 2 SCC 629, this Court scanned through the relevant case law on the subject and applied this principle even while construing "corrupt practice" in elections which is of a quasi-criminal nature. We would like to reproduce the following discussion from the said judgment: (SCC p. 694, para 100) "100. Election petitions alleging corrupt practices have a quasi-criminal character. Where a statutory provision implicates penal consequences or consequences of a quasi-criminal character, a strict construction of the words used by the legislature must be adopted. The rule of strict interpretation in regard to penal statutes was enunciated in a judgment of a Constitution Bench of this Court in Tolaram Relumal v. State of Bombay, (1955) 1 SCR 158 wherein it was held as follows: (AIR pp. 498-99, para 8 : SCR p. 164) '8. ... It may be here observed that the provisions of Section 18(1) are penal in nature and it is a well-settled rule of construction of penal statutes that if two possible and reasonable constructions can be put upon a penal provision, the court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty....
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....epeated is only that the purpose and objective behind the Act is to discourage and stop anti-competitive practice. Penal provision contained in Section 27 of the Act serves this purpose as it is aimed at achieving the objective of punishing the offender and acts as deterrent to others. Such a purpose can adequately be served by taking into consideration the relevant turnover. It is in the public interest as well as in the interest of national economy that industries thrive in this country leading to maximum production. Therefore, it cannot be said that the purpose of the Act is to "finish" those industries altogether by imposing those kinds of penalties which are beyond their means. It is also the purpose of the Act not to punish the violator even in respect of which there are no anti-competitive practices and the provisions of the Act are not attracted. ***** 97. Thus, we do not find any error in the approach of the order of COMPAT interpreting Section 27(b)." (emphasis supplied) 50. So far as the reliance placed by the CCI upon the judgment in Prem Chopra (supra) is concerned, in our considered opinion, the said judgment has no application whatsoever....