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Commissioner Of Central Excise Versus M/s. Sewa Steels Pvt. Ltd., M/s. San Tubes Limited, M/s. Bhiwadi rolling mills pvt. Ltd., M/s. Saco alloys pvt. Ltd.

2015 (4) TMI 246 - RAJASTHAN HIGH COURT

Imposition of penalty - Whether imposition of penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 equal to the amount of duty not paid during the stipulated period is mandatory - Held that:- Assessee, engaged in the manufacturing of M.S. Ingots/Billets of Non Alloy Steel, was in default of Rule 96-ZO(3) of the Rules for delay in depositing the duty, which was paid on later dates. The show cause notices were issued under Rule 96-ZO(3) and 209 of the Rules, in which the demand of interest .....

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t, at ₹ 26,000

In the judgments cited by the Central Excise Department, the question of vires of the Rules was not considered. The judgments were rendered in view of Dharmendra Textile Processors' case(2008 (9) TMI 52 - SUPREME COURT ), which was later on explained in Union of India Vs. Rajasthan Spinning & Weaving Mills(2009 (5) TMI 15 - SUPREME COURT OF INDIA), and in which, it was clearly stated by the Supreme Court that the judgment in Dharmendra Textile Processors' case(200 .....

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vour of the assessee. - D.B. EXCISE APPEAL(CUSTA) NO.8/2005, D.B. EXCISE APPEAL(EXCIA) NO.25/2008, D.B. EXCISE APPEAL(CUSTA) NO.9/2005, D.B. EXCISE APPEAL(EXCIA) NO.11/2013 - Dated:- 2-3-2015 - Mr. Sunil Ambwani And Prakash Gupta JJ. For the Appellants : Mr. Ajay Shukla with Mr. Sarvesh Jain & Mr. Vinay Mathur. For the Respondents : Mr. P.K. Kasliwal and Ms. Nilu Mathur. Judgment 1.We have heard learned counsel appearing for the parties. 2.This D.B. Excise Appeal, preferred by the Commission .....

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integra, inasmuch as in Commr. Of Cus. And Cen. Exc., Coimbatore Vs. Kannapiran Steel Re-Rolling Mills, 2011(263) E.L.T. 22(S.C.), decided on 02.12.2010, a two Judges Bench of the Hon'ble Supreme Court decided the same question, following the judgment of a three Judges Bench of the Court in Union of India and Others Vs. Dharmendra Textile Processors and Others, (2008) 13 SCC 369, and held as follows:- 8. Counsel submits that in the said decision what was interpreted by this Court was Rule 9 .....

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Rule 96-ZP are pari-materia and are identical with that of Rule 96-ZQ and Rule 96-ZO. 10. In Dharmendra's case(supra), this Court referred to the Union Budget of the year 1996-1997 wherein Section 11-AC of the Act was introduced and therein a position was made clear that there is no scope for any discretion. This Court also referred to Para 136 of the Union Budget in which reference was made to the provisions stating that the levy of penalty is a mandatory penalty and that in Notes on Claus .....

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is squarely applicable to the facats and circumstances of the present case. Consequently, we allow these appeals and set aside the order passed by the High Court as also by the Tribunal and restore the order passed by the adjudicating authority, leaving the parties to bear their own costs. 4.It is submitted that the judgment in Kannapiran Steel Re-Rolling Mills(supra), has been consistently followed by the Hon'ble Supreme Court in the matters of levy of penalty under Rules 96-ZO, 96-ZP and 9 .....

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1(S.C.), and in Commissioner of C.Ex., Mumbai Vs. Sunil Silk Mills, 2011(267) E.L.T. 438(S.C.), both decided on 20.04.2011. 6.It is submitted by learned counsel appearing for the Commissioner, Central Excise, that Dharmendra Textile Processors' case (supra), has been followed in respect of penalties levied under Rules 96-ZO, 96-ZP and 96-ZQ of the Rules, and it has been held that there is no inbuilt discretion under the Rules, to attract the principles of mens rea, or to reduce the penalty. .....

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, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penaly must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharmendra Textile decides. 8.In paragraph 24 however the Supreme Court made it clear that what is stated by it i .....

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submitted on behalf of the Central Excise Department that in Commissioner of C.Ex., Hyderabad-III Vs. Prudential Spinners Ltd.(supra), where distinction was sought to be drawn with reference to Union of India Vs. Rajasthan Spinning & Weaving Mills(supra), as well as Commissioner of Customs and Central Excise Vs. Lanco Industries Ltd., 2009(13) SCC 448, the Supreme Court observed that a similar submission was made contending that there was no warrant for levy of penalty since the assessee ha .....

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have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. On a consideration of the factual position in that case, the Supreme Court held that the Tribunal was not justified in reducing the quantum of penalty, as penalty under the provisions of the Act must be imposed equal to the duty determined under sub-section (2) of Section 11A. 10.On the strength of the aforesaid decisions of the Supreme Court, against which .....

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ndia, (2010) 260 ELT 343, decided on 08.11.2010, relying on the principle of proportionality, held in paragraphs 15 to 17 as follows:- 15. 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 .....

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t 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. 17. The writ petitions of the assessees are allowed and impugned provisions in Rules 96(ZO), (ZP) and (ZQ) permitting minimum penalt .....

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rder. The appeals filed by the revenue against the orders of the Tribunal sustaining penalty proportionate to the default will stand dismissed. 12.It is submitted that the Uttaranchal High Court in Commissioner, Customs & Central Vs. M/s Amrit Varsha Ispat (P) Ltd., (Excise Appeal No.3/2010), decided on 11.10.2011, relying on Dharmendra Textile Processors and Others(supra), held that the Supreme Court in Dharmendra Textile Processors and Others(supra), had left the issue of vires of Rule 96Z .....

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hich 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 of duty. 13.In Krishna Processors Vs. Union of India, (2012) 2 GCD 1607, the Gujarat High Court followed the same reasoning, as was adopted by the Punjab & Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. Vs. Union of India(supra), that the rigidity of Rule 96ZQ(5)(ii) inasmuch as it does not leave any discretion, is violative of Article .....

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ification. The Court 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, is ultra vires the Act and the Constitution. 14.We are informed that a Special Leave Petition has been admitted and notices have been issued against the judgment of Punjab & Haryana High Court in Bansal Alloys & Metals Pvt. Ltd. Vs. Union of India(supra). 15.An objection has been taken by le .....

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hat the Punjab & Haryana High Court has declared the provisions of Rules 96-ZO, 96-ZP and 96-ZQ of the Rules, as these Rules were existing at that time, to be ultra vires Article 14 of the Constitution of India, vide its judgment dated 08.11.2010, which has been followed by the Uttaranchal High Court, and the Gujarat High Court, and that these High Courts have consistently held that the provisions of Rules 96-ZO, 96-ZP and 96-ZQ of the Rules, in so far as they do not admit any discretion in .....

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