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TMI Blog2010 (11) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Act and also being arbitrary, discriminatory and confiscatory. Background 3. The appeals were earlier dismissed in the light of main judgment dated 3-8-2006 in Commissioner of C.Ex., Ludhiana v. K.C Alloys & Steels Castings, 2006 (206) E.L.T. 1183 (P&H). It was held that penalty under rule 96ZO was different from penalty under Section 11AC. Under Section 11AC, mens rea was the requirement for levy of minimum mandatory penalty and in absence thereof, under Rule 96ZO, either the requirement of mens rea had to be read therein or extent of penalty under the said rule should be held to be in the discretion of the concerned authority depending upon the period of delay in deposit and other circumstances. Such discretion had to be exercised judicially having regard to the principle of proportionality. Conclusions were summed up as under :- "23. (i) Scheme of levy of penalty under rule 96ZO of the Rules is different from scheme of penalty under Section 11AC of the Act, in as much as there is no requirement of proving fraud, collusion, willful misstatement or suppression of facts or intention to evade payment of duty. The object of penalty under rule 96ZO appears to be to emphasise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty was neither criminal nor quasi criminal but for failure or default of statutory civil obligation. In such situation, mens rea was not an essential element. Absolute or strict liability without proof of mens rea could also be created in a special beneficial social defence legislation such as statutes relating to economic crimes as well as in laws concerning industry, food adulteration, prevention of pollution etc. Absolute offences were not criminal offences in real sense but acts prohibited in the interest of welfare of public. Classical view "no mens rea no crime" stood eroded regarding economic crimes or departmental penalties. 5. In Union of India v. Krishna Processors, (2009) 237 E.L.T. 641, after noticing the view taken in Dharamendra Textile, it was observed that challenge to vires of the rules will stand revived as by reading the requirement of mens rea, the rule was upheld by Gujarat High Court in Ambuja Synthetics Mills v. Union of India, (2004) 175 E.L.T. 85 (Guj). Accordingly, the batch of appeals before the Hon'ble Supreme Court was remanded to respective High Courts. View taken in Ambuja Synthetics was identical to the view by this Court in K.C. Alloys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. If a legislative measure is held to be arbitrary, the same can be struck down to enforce fundamental rights under Articles 14, 19 and 21. The rules are beyond the scope of delegated legislation permitted under the Act. 10. Stand of the respondents on the other hand is that under Section 37(4) of the Act, the Central Government could make a rule providing for levy of penalty on contravention of rule with an intent to evade duty regarding removal of excisable goods, accounting for such goods, engaging in manufacture, production or storage of goods without registration. There being no compulsion to imply mens rea, minimum penalty was permissible and was neither arbitrary nor unreasonable and thus, there was no violation of fundamental rights nor the provision was beyond the scope of delegated legislation. Statutory provisions 11.We may now refer to the statutory provisions :- Section 37 : Power of Central Government to make rules - (1) to (3) xxxx xx xx xx (4) Notwithstanding anything contained in sub section (3) and without prejudice to the provisions of section 9, in making rules under this section, the Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est at the rate of eighteen per cent per annum on such outstanding amount calculated for the period from the 1st day of April, 1998 till the date of actual payment of the outstanding amount : Provided that if the manufacturer fails to pay the total amount of duty payable under clause (a) by the 30th day of April, 1998, he shall also be liable to pay a penalty equal to the outstanding amount of duty as on the 30th day of April, 1998 or five thousand rupees, whichever is greater. II. Total amount of duty liability for a financial year subsequent to 1997-1998 (a) a manufacturer shall pay a total amount calculated at the rate of Rs. 50 per metric tonne on the annual capacity of production of his factory as determined under the Induction Furnace Annual Capacity Determination Rules, 1997. This amount shall be paid by the 31st day of March of the financial year; (b) the amount of duty already paid, together with on-account amount paid by the manufacturer, if any, during the financial year shall be adjusted towards the total amount of duty liability; (c) if a manufacturer fails to pay the total amount of duty payable under clause (a) by the 31st day of March, of the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing amount of duty or five thousand rupees, whichever is greater." Rules 96(ZP) and 96(ZQ) are identical. Scope of Rule Making Power 12. Reference to the above clearly shows that power to make rule for levying penalty equal to the outstanding amount of duty could be exercised only if the default was with intent to evade payment of duty. This was not under consideration before the Hon'ble Supreme Court in the said pronouncement. The rule making authority could not go beyond the Act and when the Act provides for requirement of mens rea, the rule could not dispense with the said requirement. For this settled position of law, reference may be made to judgments of the Hon'ble Supreme Court in State of TN and another v. P. Krishnamurthy and others, (2006) 4 SCC 517 and Bombay Dyeing & Manufacturing Company Limited (3) v. Bombay Environmental Action Group, AIR 2006 SC 1489. Reasonableness and Proportionality 13. Apart from above, only similarly circumstanced persons could be treated alike. Un-equals cannot be treated as equals. Reasonableness is omnipresent part of right to equality as held in Smt. Maneka Gandhi v. Union of India and another, AIR 1978 SC 597. Every enactmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a proper balance between the adverse effects which the legislation or the administrative order may have on the rights, liberties or interests of persons keeping in mind the purpose which they were intended to serve". The legislature and the adminis-trative authority are, however, given an area of discretion or a range of choices but as to whether the choice made infringes the rights excessively or not is for the court. That is what is meant by proportionality. xxxxxxxx xx (II) Proportionality and Legislation inUKandIndia 30. On account of a Chapter on Fundamental Rights in Part III of our Constitution right from 1950, Indian Courts did not suffer from the disability similar to the one experienced by English Courts for declaring as unconstitutional legislation on the principle of proportionality or reading them in a manner consistent with the charter of rights. Ever since 1950, the principle of "proportionality" has indeed been applied vigorously to legislative (and administrative) action inIndia. While dealing with the validity of legislation infringing fundamental freedoms enumerated in Article 19(1) of the Constitution of India - such as freedom of speech and expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slation. The dissenting judgment of Bhagwati, J. (see Bachan Singh v. State ofPunjab(1982) 3 SCC 24) dealt elaborately with "proportionality" and held that the punishment provided by the statute was disproportionate. 32. So far as Article 14 is concerned, the courts inIndiaexamined whether the classification was based on intelligible differentia and whether the differentia had a reasonable nexus with the object of the legislation. Obviously, when the courts considered the question whether the classification was based on intelligible differentia, the courts were examining the validity of the differences and the adequacy of the differences. This is again nothing but the principle of proportionality. There are also cases where legislation or rules have been struck down as being arbitrary in the sense of being unreasonable [see AirIndiav. Nergesh Meerza, (1981) 4 SCC 335 (SCC at pp. 372-373)]. But this latter aspect of striking down legislation only on the basis of "arbitrariness" has been doubted in State of A.P. v. McDowell and Co. - (1996) 3 SCC 709.. 33. InAustraliaandCanada, the principle of proportionality has been applied to test the validity of statutes [see Cunliff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 legislation as well as administrative action which was challenged as being discriminatory under Article 14, were examining whether the classification was discriminatory, in the sense whether the criteria for differentiation were intelligible and whether there was a rational relation between the classification and the object sought to be achieved by the classification. It is not necessary to give citation of cases decided by this Court where administrative action was struck down as being discriminative. There are numerous. (ii) Arbitrariness test under Article 14 59. But, in E.P. Royappa v. State ofT. N.(1974) 4 SCC 3 Bhagwati,J. laid down another test for purposes of Article 14. It was stated that if the administrative action was "arbitrary", it could be struck down under Article 14. This principle is now uniformly followed in all courts more rigorously than the one based on classification. Arbitrary action by the administrator is described as one that is irrational and not based on sound reason. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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