Commissioner of Central Excise vs Pee Iron and Steel Co. (P.) Ltd.

Ajay Kumar Mittal, J.—This order shall dispose of a bunch of thirteen appeals bearing CEA Nos. 65 of 2011 and 26 to 28, 39, 47, 48, 50, 51, 53, 54, 58 and 59 of 2013 as according to the learned counsels for the appellant, the issue involved in these cases is identical. For brevity, the facts are being extracted from CEA No. 39 of 2013.This appeal has been preferred by the revenue u/s 35G of the Central Excise Act, 1944 (in short "the Act") against the order dated 24.7.2012 (Annexure A-4) passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (hereinafter referred to as "the Tribunal") claiming the following substantial questions of law:--

Whether merely demanding interest and imposing penalty from/on the assessee in case of violation of certain Sections/Rules, the provisions in Rules 96(ZO), (ZP) and (ZQ) permitting minimum penalty for delay in payment, without any discretion and without having regard to extent and circumstances for delay can be held to be ultra vires of the Act and the Constitution?

Whether the provisions in Rules 96(ZO), (ZP) and (ZQ) permitting minimum penalty for delay in payment, without any discretion and without having regard to extent and circumstances for delay can be held to be ultra vires of the Act and the Constitution, when on merits it has been decided by the same High Court that the provisions for imposing penalty under Rule 96 (ZO) are mandatory and there is no discretion vested in any authority to reduce the amount of penalty?

Whether in the facts and circumstances of the case the CESTAT is correct in allowing the appeal of the party?

Whether the Order of the Hon''ble CESTAT merits to be set aside by this Hon''ble Court?

The assessee is engaged in the business of manufacture of Non-alloy Steel Ingots. It was working under the compounded levy scheme u/s 3A of the Act and was required to pay a sum of duty of Rs. 5.50 lacs in a month in two equal instalments, the first installment of Rs. 2.75 lacs latest by the 15th day of each month and the 2nd instalment of the equal amount by the last day of each month in terms of Rule 96ZO(3) of the Central Excise Rules, 1944 (in short "the Rules"). In the month of June, 1999, the assessee paid only a sum of Rs. 2 lacs in the first fortnight. In the month of July, 1999, the assessee failed to deposit any amount and, thus, failed in fulfilling its duty liability. Accordingly, the assessee was liable to pay interest @ 18% per annum on the outstanding amount of Rs. 6.25 lacs and also penalty in terms of 3rd proviso to Rule 96ZO(3) of the Rules. Further, in the month of September, 1999, the respondent paid only a sum of Rs. 2.20 lacs in the first fortnight and did not pay any amount in the 2nd fortnight. Similarly, in the month of November, 1999, the assessee did not pay any amount for the first fortnight whereas in January, 2000, it paid only Rs. 1 lac in the first fortnight. In the months of February and March, 2000, the assessee failed to deposit any amount and, therefore, rendered itself liable to pay interest @ 18% per annum on the outstanding amount of Rs. 18.80 lacs and also liable to equal penalty in terms of the Rules. Accordingly, the show cause notices dated 15.11.1999 and 27.4.2000 (Annexure P-1 Colly) for the recovery of interest at the rate of 1896 per annum on the outstanding amount of Rs. 6.25 lacs and Rs. 18.80 lacs, respectively along with penalty in terms of 3rd proviso to Rule 96ZO(3) of the Rules subject to the final decision of the Supreme Steel Industries v. Union of India, Civil Appeal No. 52-83 of 1998, dated 21.4.1998 for penalty clause only was issued. The Assistant Commissioner vide order-in-original dated 31.3.2003 (Annexure A-2) ordered for recovery of interest and imposed equal penalty of Rs. 25.05 lacs. Feeling aggrieved, the assessee filed an appeal before the Commissioner (Appeals) who vide order dated 13.10.2004 (Annexure A-3) reduced the penalty to Rs. 25,000/-. Against the order dated 13.10.2004 (Annexure A-3), the revenue filed an appeal before the Tribunal. The Tribunal vide order dated 24.7.2012 (Annexure A-4) upheld the said order and dismissed the appeal. Hence, the present appeal.

Learned counsel for the revenue submitted that though this Court has held the provisions of Rule 96ZO(3) of the Rules to be ultra vires in Bansal Alloys and Metals Pvt. Ltd. Vs. Union of India (UOI), in so far as it did not confer any discretion on the authority to levy lesser penalty. According to the learned counsel, the SLP filed against the said decision is pending in the Hon''ble Supreme Court.

On the other hand, learned counsel for the assessee besides supporting the order of the Tribunal relied upon the judgment of the Gujarat High Court in Krishna Processors Vs. Union of India, and Himachal Pradesh High Court in Shubh Timb Steel Ltd. Vs. Union of India, wherein following the judgment of this Court in Bansal Alloys & Metals (P.) Ltd.''s case (supra), the issue has been decided in favour of the assessee.

After hearing learned counsel for the parties, we do not find any merit in the appeal. This Court in Bansal Alloys & Metals (P.) Ltd.''s case (supra) deciding the question of vires of Rules 96ZO(3), 96ZP and 96ZQ of the Rules held the said provisions to the extent of providing for mandatory minimum penalty without mens rea and without any element of discretion as excessive and unreasonable restriction on fundamental rights being arbitrary and were accordingly declared to be ultra vires the Act and the Constitution. It was recorded as under:--

Applying the above principles to the present situation, the provision for minimum mandatory penalty equal to the amount of duty even for slightest bona fide 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 can be punished or a penalty could be imposed is not a blanket power without providing for any justification. In the Indian Constitutional scheme, power of legislature is circumscribed by fundamental rights. Judicial review of legislation is permissible on the ground of excessive restriction as against reasonable restriction which is also described as proportionality test.

Conclusion

For the above reasons, we hold that the impugned provision to the extent of providing for mandatory minimum penalty without any mens rea and without any element of discretion is excessive and unreasonable restriction on fundamental rights and is arbitrary. Moreover, exercise of such power by way of subordinate legislation is not permissible when rule making authority for levying penalty is limited to default "with intent to evade duty".

The writ petitions of the assessees are allowed and impugned provisions in Rules 96(ZO), (ZP) and (ZQ) permitting minimum penalty for delay in payment, without any discretion and without having regard to extent and circumstances for delay are held to be ultra vires the Act and the Constitution. In CWP No. 8555 of 2010, penalty has been sustained by the Tribunal to the extent of 10096 which will stand quashed without prejudice to any fresh order being passed in accordance with law. It is made clear that if penalty has attained finality as in CWP No. 18099 of 2009 up to this Court, this order will not affect the finality of such order. The appeals filed by the revenue against the orders of the Tribunal sustaining penalty proportionate to the default will stand dismissed.

Following the aforesaid judgment in Bansal Alloys & Metals (P.) Ltd.''s case (supra), Gujarat High Court in Krishna Processor''s case (supra) had recorded as under:--

20.15 The above view taken by this court finds support in the decision of the Punjab & Haryana High Court in the case of Bansal Alloys & Metals (P.) Ltd. v. Union of India (supra) wherein the court has held that the provision for minimum mandatory penalty equal to the amount of duty even for slightest bona fide 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.

Himachal Pradesh High Court in Shubh Timb Steel Ltd.''s case (supra) in view of the judgment in Bansal Alloys & Metals (P.) Ltd.''s case (supra) had held in the following terms:--

This issue was discussed threadbare by a Division Bench of the Punjab and Haryana High Court in the judgment cited above wherein after discussing the entire law, the Court held as follows:-

Applying the above principles to the present situation, the provision for minimum mandatory penalty equal to the amount of duty even for slightest bona fide 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 can be punished or a penalty could be imposed is not a blanket power without providing for any justification. In the Indian Constitutional scheme, power of legislature is circumscribed by fundamental rights. Judicial review of legislation is permissible on the ground of excessive restriction as against reasonable restriction which is also described as proportionality test.

For the above reasons, we hold that the impugned provision to the extent of providing for mandatory minimum penalty without any mens rea and without any element of discretion is excessive and unreasonable restriction on fundamental rights and is arbitrary. Moreover, exercise of such power by way of subordinate legislation is not permissible when rule making authority for levying penalty is limited to default "with intent to evade duty.

We are in agreement with the aforesaid judgment. We feel that when Section 37, which is the rule making power, is clear that penalty can be imposed only when the assessee is guilty of intending to evade the payment of duty, the penalty cannot be imposed without such intention. Furthermore, even when intention may be there, the penalty must be reasonable and cannot, in all cases, be fixed at 10096 of the excise leviable. Each case must be decided on its own facts and circumstances. There may be cases where the delay is only of a day or two and the authorities must be given the discretion to impose the penalty which they feel is reasonable in the facts and circumstances of the case. In view of the above, no substantial question of law arises in these appeals. Consequently, all the appeals are dismissed.