2012 Supreme(Guj) 153

2012 (2) GCD 1607 (Guj) (DB)
Hon’ble Ms. Justice Harsha Devani &
Hon’ble Mr. Justice R.M. Chhaya
Krishna Processors & Anr.
Versus
Union of India & Ors.
Special Civil Application No. 1984 of 20021—Decided on 16/03/2012

Point in Issue :
Whether provision under the Act and Rules inspiring penalty are ultra vires.

Headnote:Head Note :

       Central Excise Act, 1944 (Central Act 1 of 1944) — Sections 3A, 11AC, 11A(2), 37(1), (2) and (3) — Central Excise Rules, 1944 — Rules 962Q(5)(11), 96ZP(3) — 173Q(1) —General Clauses Act — Section 6 — Provision imposing penalty — Challenged as ultra vires of Constitution — Also claimed order imposing penalty as invalid — Sustainability — Scope of — Finding as to — Rule 962Q(5)(11) of Rules is mandatory in nature and even in case of a delay of one day penalty equal to the amount of outstanding duty would be leviable — That apart except for the manufacturers of specified textile products and other manufacturers governed by Section 3A of the Act no other manufacturer of any other excisable goods is governed by provisions of Rule 96ZQ (5)(ii) or similar provision under Rule 96ZP(3) — In case of any other manufacturer the regular provisions of the Act would be applicable — Court held the said provisions for mandatory penalty for slightest bona fide delay without any element of discretion is beyond the purpose of legislature — The object of the Rule is to safe guard the revenue against the loss if any — The penalty is provided in addition to interest — Mere fact that without mens rea an assessee can be punished is blanket power without providing for any justification — The Court therefore held that said provisions without any discretion and without having regard to the extent of circumstances for delay to be ultra vires the Act and the Constitution — The other question is with regard imposition of penalty under the Rules — Admittedly the Said Rules are omitted from the Statute book on 1.3.2001 therefore no action Could thereafter have to be initiated there under — All proceeding therefore pending under the Rules automatically lapsed — As a result the orders imposed in the present petition are quashed and set aside as being without authority of law.

       Held :

       This Court is of the view that upon the omission of Rules 96ZQ, 96ZP and 96ZO from the statute book on 1st March, 2001, no action could thereafter have been initiated thereunder. However, in view of the fact that the notification dated 1st March, 2001 amends the Central Excise Rules except as respects things done or omitted to be done by such amendment, the pending proceedings already initiated under Rules 96ZQ, 96ZO and 96ZP could continue. Whereas after the omission of Section 3A of the Act, no action whatsoever could be initiated, continued or taken under the said provision or the Rules framed thereunder or framed in respect thereof. In the circumstances, the contention raised on behalf of the petitioners that as vide Clause 7 of notification dated 1st March, 2001, Rules 96ZO, 96ZP and 96ZQ were omitted without any saving Clause and Section 3A was also omitted vide Section 121 of the Finance Act, 2001 on 11th May, 2001 without any saving clause, all proceedings which were pending as on 11th May, 2001 as regards Rules 96ZO, 96ZP and 96ZQ would thereafter automatically lapse, merits acceptance. Consequently, no orders could have been passed against the petitioners under the said provisions if the actions against the petitioners were not concluded at the time of omission of Section 3A of the Act. [Para 18.3]

       Insofar as intitiation of proceedings after omission of the Rule 96ZQ, 96ZP and 96ZO is concerned, as held hereinabove, the same is not saved by the notification dated 1st March, 2001 whereby the said Rules came to be omitted. Insofar as continuance of proceedings under the said Rules after the omission of the said Rules is concerned, as held hereinabove, after omission of Section 3A of the Act without any saving clause, the power to conclude those proceedings disappeared from the scene. Therefore, even in case of proceedings initiated prior to the omission of Rule 96ZQ, 96ZP and 96ZO of the Rules, if the same were not concluded prior to the omission of Section 3A of the Act, there was no power to proceed further and conclude the same. Under the circumstances, any action taken under Rules 96ZQ, 96ZO and 96ZP of the Rules after Section 3A of the Act came to be omitted from the statute book without any saving clause, would be without authority of law and as such any orders passed in respect thereof after the omission of Section 3A of the Act would be non est. As a result of the aforesaid discussion, the orders impugned in the present petitions are required to be quashed and set aside as being without authority of law. [Para 19]

       As noted hereinabove, Rule 96ZQ(5)(ii) is mandatory in nature and even in case of a delay of one day, penalty equal to the amount of outstanding duty would be leviable. The Rule does not require consideration as regards the period of delay or the gravity of default on the part of the concerned assessee and proposes to treat all assessees equally. An assessee paying the second instalment after one day of the specified date and an assessee paying such amount after a hundred days of the specified date are treated equally, despite the fact that in the later case, the same would show deliberate default on the part of the concerned assessee. Thus, it is apparent that the Rule treats unequals as equals, thereby violating Article 14 of the Constitution.

        [Para 20.9]

       Under Rule 96ZQ(5)(ii), merely by dint of the fact that the amount has been paid after a delay may be of even only one day, the assessee is liable to pay penalty equal to the amount of outstanding duty. There is no discretion vested in the adjudicating authority to reduce the amount of penalty. Thus, the provisions under Rule 96ZQ(5)(ii) of the Rules evidently are more onerous than the provisions of Section 11AC of the Act which make provision for levy of penalty in case of fraud, collusion, mis-statement etc. Thus, it is apparent that the Rule operates to the prejudice of the assessees covered under the said Rule namely, independent processors of textile fabrics. In the circumstances, Clause (ii) of Sub-rule (5) of Rule 96ZQ is clearly violative of Article 14 of the Constitution of India inasmuch as the same discriminates between two classes of persons namely, independent processors of textile fabrics and other manufacturers who are not covered by Rule 96ZQ. [Para 20.12]

       Thus, manufacturers of goods specified under Section 3A of the Act are evidently subjected to harsh treatment of unreasonable penalty under Rule 96ZQ(5)(Ii) compared to manufacturers of other excisable goods. Moreover, considering the nature of the penalty prescribed even for one day’s delay, it is apparent that the said provision would amount to imposition of an unreasonable restriction on the petitioners right to conduct business thereby rendering the said provision as violative of Article 19(1)(g) of the Constitution. [Para 20.13]

       The provision for minimum mandatory penalty equal to the amount of duty even for slightest bonafide delay without any element of discretion is beyond the purpose of legislation. The object of the Rule is to safeguard the revenue against loss, if any. The penalty has been provided in addition to interest. Mere fact that without mens rea, an assessee can be punished or a penalty could be imposed is not a blanket power without providing for any justification. The Court, accordingly, held the provisions of Rules 96ZO, ZP and ZQ permitting penalty for delay in payment, without any discretion and without having regard to the extent and circumstances for delay to be ultra vires the Act and the Constitution. [Para 20.15]

       Law Laid Down :

       Penalty is additional tax and as such the Constitutional mandate requires a clear authority for imposing there of.