Commissioner, Customs and Central Excise, Meerut-I vs M/s Amrit Varsha Ispat (P) Ltd. Muni Ki Reti, Rishikesh

This is an appeal u/S 35 G of the Central Excise Act, 1944. The facts leading to the filing of the present appeal is, that the respondent is a company engaged in the manufacture of M.S. Ingots falling under Tariff heading No. 7206.90 of the Central Excise Tariff Act 1985. The respondent company intimated the Commissioner of Central Excise, Meerut about their intention to avail the procedure prescribed under Rule 96ZO(3) of the Central Excise Rules, 1944 (hereinafter referred to as the ''Rules'') for full and final discharge of their liability to pay duty on the manufacture of ingots of non-alloy steel under the provisions of 3A of the Central Excise Act, 1944.

It transpires that the Commissioner, Central Excise, by an order dated 19th September, 1997 fixed the annual capacity of production of the respondent company under Induction Furnace Capacity Determination Rules, 1997 at 9600 M.T. which was based on the total installed furnace capacity of 3 M.T. On the basis of this assessment, the monthly duty liability of the respondent company came to Rs. 5,00,000/- and the respondent was liable to pay this duty in two equal installments. The first installment was to be paid by the 15th day of each month and the second latest by the last day of the month.

It further transpires that the respondent company failed to discharge its duty within the stipulated period for the period February 1999 to March 2000 under the Rule 97ZO(3) but paid the duty subsequently alongwith interest @ 18% per annum. Since the respondent company, did not pay the central excise duty as per the provisions of Rule 96ZO(3), the Deputy Commissioner Central Excise, by an order dated 31st March 2003, confirmed the demand of interest amounting to Rs.1,96,644/- under proviso 3(i) of the Rule 96ZO(3) and further imposed a penalty of Rs.67,50,000/- which was equal to the amount of duty under proviso 3(ii) of the Rule 96ZO(3) of the Rules.

Aggrieved by the imposition of the penalty, the respondent company preferred an appeal before the Commissioner (Appeals), Central Excise Meerut, who by an order dated 4th June, 2004 reduced the penalty from Rs.67,50,000/- to Rs. 4,00,000/- The Revenue, being aggrieved by this order, filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), who by an order dated 27th August 2008, dismissed the appeal and affirmed the order of the Commissioner (Appeals). It transpires that thereafter the Revenue filed an application for rectification which was dismissed by an order dated 3rd December, 2009. The Revenue, being aggrieved by the aforesaid orders, has filed the present appeal u/S 35 G of the Central Excise Act, 1944.

Heard Shri Shobhit Saharia, the learned counsel for the appellant and Shri Aalok Arora, the learned counsel for the respondent company.

The only contention raised by the learned counsel for the appellant is that Rule 96ZO(3)(ii) does not provide any discretionary power to the authority to reduce the penalty and, in support of his submission, the learned counsel placed reliance upon a decision of the Supreme Court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , wherein, the Supreme Court held that mens rea was not an essential ingredient and that there was no scope for levying penalty below the prescribed minimum contemplated under Rule 96ZO of the Rules. In the light of this decision, the learned counsel stressed that the order of the Commissioner Central Excise (Appeals) as affirmed by the Tribunal being patently against the decision of the Supreme Court was liable to be set aside. On the other hand, the learned counsel for the respondent company laid stress upon a decision of a Division Bench of the Punjab and Harayana High Court in the matter of Bansal Alloys and Metals Pvt. Ltd. Vs. Union of India, 2010 (260) ELT 343, wherein, the Court held that Rule 96ZO providing mandatory minimum penalty without the element of mens rea and without any element of discretion was excessive and an unreasonable restriction on the fundamental rights and, consequently, held that Rule 96ZO was ultravires the Act and the Constitution. In the light of this decision, the learned counsel for the respondent further submitted that the order of the Commissioner (Appeals) as well as the order of the Tribunal in which it was held that the authority had the power to exercise its discretion and consider the element of mens rea was perfectly justified and need not be disturbed.

In response to the said contention, the learned counsel for the appellant submitted that against the decision of the Punjab and Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. (Supra), the Revenue has filed a SLP before the Supreme Court of India where the matter is pending consideration. The learned counsel for the appellant candidly conceded that the judgment of the Punjab and Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. (Supra) has not been stayed as yet by the Supreme Court of India.

In the light of the aforesaid stand taken by the rival parties, the Court finds that the Supreme Court in the case of Dharamendra Textile Processors (Supra) had left the issue of the vires of Rule 96ZO open to be dealt with by the High Court which was eventually decided by the Punjab and Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. (Supra), in which, it was held that there can not be any equal amount of penalty without mens rea being established. We have gone through the judgment of Punjab and Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. (Supra) and find that Rule 96ZO imposes an unreasonable restriction and is violative of Section 37 of the Act which clearly provides that a Rule can be framed only to the extent that it contravenes the provision of any such rule with intent to evade payment on duty.

In the light of the aforesaid, we are of the opinion that mens rea is an essential element which is required to be considered before imposing penalty under Rule 96ZO. Accordingly, we are in complete agreement with the decision of the Punjab and Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. (Supra).

In the light of the aforesaid, the Commissioner (Appeals) was justified in reducing the penalty which was rightly upheld by the Tribunal. Consequently, we do not find any error in the impugned order. The appeal fails and is dismissed.