TMI Blog2010 (11) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... elay are held to be ultra vires the Act and the Constitution - penalty has been sustained by the Tribunal to the extent of 100% which will stand quashed without prejudice to any fresh order being passed in accordance with law - appeal disposed of - 18099 of 2009 - - - Dated:- 8-11-2010 - Adarsh Kumar Goel and Ajay Kumar Mittal, JJ. REPRESENTED BY : S/Shri Jagmohan Bansal and Vishav Bharti Gupta, Advocates, for the Petitioner. S/Shri Gurpreet Singh and H.P.S. Ghuman, Standing Counsels, for the Respondent. [Order per : Adarsh Kumar Goel, J.] This order will dispose of CWP Nos. 18099, 19513 of 2009, 780, 943, 8555, 9412, 11752 of 2010, CEA Nos. 46 of 2004, 80, 81, 161, 164, 184 of 2005, 6, 16, 84, 172 of 2006 and 88 of 2007. 2. The appeals have been preferred by the revenue under Section 35G of the Central Excise Act, 1944 (for short, the Act ) against judgments of the Tribunal holding that penalty equal to the amount of duty was not mandatory under Rule 96ZO(3) of the Central Excise Rules, 1944 (in short, the Rules ). The writ petitions seek declaration of Rules 96ZO, 96ZP, 96ZQ of the rules being ultravires the rule making power under the Act and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of conflict of opinions. In Dalip N.Shroff v. Joint Commissioner of Income Tax, (2007) 6 SCC 329 = 2007 (219) E.L.T. 15 (S.C.), the view taken was that mens rea should be held to be an essential ingredient for levy of minimum penalty under Section 11AC of the Act. On the other hand, in SEBI v. Shriram Mutual Fund and another, (2006) 5 SCC 361, in the context of Sections 15D(b) and 15E of the Securities and Exchange Board of India Act, 1992 (SEBI Act), it was held that it was not necessary to read requirement of mens rea in a provision laying down minimum penalty. After referring to judgments in Director of Enforcement v. MCTM Corpn. (P) Ltd. - (1996) 2 SCC 471, J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers, (1996) 6 SCC 665, R.S. Joshi v. Ajit Mills Ltd. - (1977) 4 SCC 98, Gujarat Travancore Agency v. CIT - (1989) 3 SCC 52 = 1989 (42) E.L.T. 350 (S.C.), Swedish Match AB v. SEBI, (2004) 11 SCC 641, SEBI v. Cabot International Capital Corpn, (2005) 123 Comp Cases 841 (Bom.), it was held that plea of concept of inbuilt discretion in Rules 96ZO and 96ZQ could not be accepted. The observations in the judgments relied upon included that provision of penalty was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required to pay penalty equal to the outstanding amount of duty i.e. Rs. 6,66,500/- under third proviso to Rule 96ZO(3) vide order dated15-2-2005. On appeal, it was held that since duty had already been deposited and there was delay only of seven days, there was no justification for imposing minimum penalty. Accordingly, quantum of penalty was reduced to Rs. 5000/- with the following observations :- In the present case the differential duty was delayed only for 7 days and the appellant deposits the same alongwith interest as such the penalty of Rs. 5000/- is imposed on them. The above view has been upheld by the Tribunal following judgment of this Court in K.C.Alloys. Rival contentions 9. Learned counsel for the petitioner submits that even though it may be permissible to provide for penalty for breach of civil obligation without mens rea or even for absolute offences in strict liability without mens rea in certain cases, legislature could not act arbitrarily and provide for minimum heavy penalty for slightest default. Principle of proportionality was part of reasonableness and even a legislative measure has to pass the test of reasonableness. If a legislative measure is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of duty liability shall be calculated and paid in the following manner - I. Total amount of duty liability for the period from the 1st day of September, 1997 to the 31st day of March, 1998 (a) a manufacturer shall pay a total amount calculated at the rate of Rs. 750 per metric tonne on capacity of production of his factory for the period from the 1st day of September, 1997 to the 31st day of March, 1998, as determined under the Induction Furnace Annual Capacity Determination Rules, 1997. This amount shall be paid by the 31st day of March, 1998; (b) the amount of duty already paid, together with on-account amount paid by the manufacturer, if any, during the period from the 1st day of September, 1997 to the 31st day of March, 1998, shall be adjusted towards the total amount of duty liability payable under clause (a); (c) if a manufacturer fails to pay the total amount of duty payable under clause (a) by the 31st day of March, 1998, he shall be liable to pay the outstanding amount (that is the amount of duty which has not been paid by the 31st day of March, 1998) along with interest at the rate of eighteen per cent per annum on such outstanding amount calculated for the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, the first instalment latest by the 15th day of each month, and the second instalment latest by the last day of each month, and the amounts so paid shall be deemed to be full and final discharge of his duty liability for the period from the 1st day of September, 1997 to the 31st day of March, 1998, or any other financial year, as the case may be, subject to the condition that the manufacturer shall not avail of the benefit, if any, under sub-section (4) of Section 3-A of the Central Excise Act, 1944 (1 of 1944) : xxxxxxxxxx Provided also that where a manufacturer fails to pay the whole of the amount payable for any month by the 15th day or the last day of such month, as the case may be, he shall be liable to - (i) pay the outstanding amount of duty alongwith interest thereon at the rat of eighteen per cent per annum calculated for the period from the 16th day of such month or the 1st day of next month, as the case may be, till the date of actual payment of the outstanding amount, and (ii) a penalty equal to such outstanding amount of duty or five thousand rupees, whichever is greater. Rules 96(ZP) and 96(ZQ) are identical. Scope of Rule Making Power 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or excessive having regard to the purpose of the statute and that the Court can go into the question whether there is a proper balancing of the fundamental right and the restriction imposed, is well settled. [See Chintaman Rao v. State of M.P., AIR 1951 SC 118 State of Madras v. V.G. Row, AIRE 1952 SC 196, Indian Express Newspapers Bombay (P) Ltd. v. Union of India, (1985) 1 SCC 641.] (The principle of proportionality is applied in Australia and Canada also, Cunliffe v. Commonwealth, (1994) 68 Aust LJ 791 to test the validity of statutes.). 14. InOmKumar v. Union of India, AIR 2000 SC 3689, it was observed :- 28. By proportionality , we mean the question whether, while regulating exercise of fundamental rights, the appropriate or least-restrictive choice of measures has been made by the legislature or the administrator so as to achieve the object of the legislation or the purpose of the administrative order, as the case may be. Under the principle, the court will see that the legislature and the administrative authority maintain a proper balance between the adverse effects which the legislation or the administrative order may have on the rights, liberties or interests of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permissible under Articles 19(2) to (6). Otherwise, it must be held to be wanting in that quality. Patanjali Sastri, C.J. in State of Madras v. V.G. Row, AIR 1952 SC 196, observed that the Court must keep in mind the nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time . This principle of proportionality vis-a-vis legislation was referred to by Jeevan Reddy, J. in State ofA.P.v. McDowell Co. (1996) 3 SCC 709 recently. This level of scrutiny has been a common feature in the High Court and the Supreme Court in the last fifty years. Decided cases run into thousands. 31. Article 21 guarantees liberty and has also been subjected to principles of proportionality . Provisions of the Criminal Procedure Code, 1974 and the Indian Penal Code came up for consideration in Bachan Singh v. State of Punjab (1980) 2 SCC 684 the majority upholding the legislation. The dissenting judgment of Bhagwati, J. (see Bachan Singh v. State ofPunjab(1982) 3 SCC 24) dealt elaborately with proportionality and held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be tested on the anvil of proportionality has never been doubted inIndia. This is called primary review by the courts of the validity of legislation which offended fundamental freedoms. xxxxxxxxxx 53 Now under Articles 19(2) to (6), restrictions on fundamental freedoms can be imposed only by legislation. In cases where such legislation is made and the restrictions are reasonable yet, if the statute concerned permitted the administrative authorities to exercise power or discretion while imposing restrictions in individual situations, question frequently arises whether a wrong choice is made by the administrator for imposing restriction or whether the administrator has not properly balanced the fundamental right and the need for the restriction or whether he has imposed the least of the restrictions or the reasonable quantum of restriction etc. In such cases, the administrative action in our country, in our view, has to be tested on the principle of proportionality , just as it is done in the case of the main legislation. This, in fact, is being done by our courts. xxxxxxxxxx (a)(i) Classification test under Article 14 58. Initially, our courts, while testing le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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