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CX - Sec 3A - 'Omission' being tantamount to 'deletion' is form of repeal - Interest and Penalty provisions of Rules 96 ZO, ZP,ZQ quashed: SC

By TIOL News Service

NEW DELHI, NOV 26, 2015: THIS batch of appeals raises questions relating to the demand for interest and penalty under Rules 96ZO, 96 ZP and 96 ZQ of the Central Excise Rules, 1994, which were framed in order to effectuate the provisions contained in Section 3A of the Central Excise Act, 1994. Several High Courts have struck down the said Rules relating to penalty as being ultra vires the parent provision and violative of Articles 14 and 19(1)(g) of the Constitution. Most of the appeals in this batch are, therefore, by the Union of India.

The High Court found, after distinguishing some of the judgments of the Supreme Court, and after relying upon Section 38A of the Central Excise Act, which was added vide Section 131 of the Finance Act, 2001, that on omission of Section 3A, the liability of the assessee was not wiped out.

First, it may be noted that the judgment of the Supreme Court in the Fibre Board's case 2015-TIOL-178-SC-IT, has taken the view that an "omission" would amount to a "repeal". Ultimately, the Court arrived at the conclusion that an "omission" would amount to a "repeal" for the purpose of Section 24 of the General Clauses Act. Since the same expression, namely, "repeal" is used both in Section 6 and Section 24 of the General Clauses Act, the construction of the said expression in both sections would, therefore, include within it "omissions" made by the legislature.

The Supreme Court observed,

"Omission" being tantamount to a "deletion" is a form of repeal: On a conjoint reading of the three expressions "delete", "omit", and "repeal", it becomes clear that "delete" and "omit" are used interchangeably, so that when the expression "repeal" refers to "delete" it would necessarily take within its ken an omission as well. This being the case, we do not find any substance in the argument that a "repeal" amounts to an obliteration from the very beginning, whereas an "omission" is only in futuro. If the expression "delete" would amount to a "repeal", which the appellant's counsel does not deny, it is clear that a conjoint reading of Halsbury's Laws of England and the Legal Thesaurus both lead to the same result, namely that an "omission" being tantamount to a "deletion" is a form of repeal.

It is clear, therefore, that when this Court referred to Section 6A in Fibre Board's case and held that Section 6A shows that a repeal can be by way of an express omission, obviously what was meant was that an amendment which repealed a provision could do so by way of an express omission. This being the case, it is clear that Section 6A undisputedly leads to the conclusion that a repeal would include a repeal by way of an express omission.

Fibre Board's case is a recent judgment which, as has correctly been argued the senior counsel on behalf of the revenue, clarifies the law in holding that an omission would amount to a repeal. The converse view of the law has led to an omitted provision being treated as if it never existed, as Section 6 of the General Clauses Act would not then apply to allow the previous operation of the provision so omitted or anything duly done or suffered thereunder. Nor may a legal proceeding in respect of any right or liability be instituted, continued or enforced in respect of rights and liabilities acquired or incurred under the enactment so omitted. In the vast majority of cases, this would cause great public mischief, and the decision of Fibre Board's case is therefore clearly delivered by this Court for the public good, being, at the very least a reasonably possible view. Also, no aspect of the question at hand has remained unnoticed.

No interest under Rules 96 ZO, 96 ZP and 96 ZQ: it will have to be declared that since Section 3A which provides for a separate scheme for availing facilities under a compound levy scheme does not itself provide for the levying of interest, Rules 96 ZO, 96 ZP and 96 ZQ cannot do so and therefore on this ground the appellant has to succeed. On this ground alone therefore the impugned judgment is set aside.

Penalty under Rules 96 ZO, 96 ZP and 96 ZQ: First and foremost, a delay of even one day would straightaway, without more, attract a penalty of an equivalent amount of duty, which may be in crores of rupees. It is clear that as has been held by this Court, penalty imposable under the aforesaid three Rules is inflexible and mandatory in nature. The High Court is, therefore, correct in saying that an assessee who pays the delayed amount of duty after 100 days is to be on the same footing as an assessee who pays the duty only after one day's delay and that therefore such rule treats unequals as equals and would, therefore, violate Article 14 of the Constitution of India. It is also correct in saying that there may be circumstances of force majeure which may prevent a bonafide assessee from paying the duty in time, and on certain given factual circumstances, despite there being no fault on the part of the assessee in making the deposit of duty in time, a mandatory penalty of an equivalent amount of duty would be compulsorily leviable and recoverable from such assessee. This would be extremely arbitrary and violative of Article 14 for this reason as well. Clearly the levy of penalty in these cases of a mandatory nature for even one day's delay, which may be beyond the control of the assessee, would be arbitrary and excessive.

The direct and immediate impact upon the fundamental right of the citizen is that he is exposed to a huge liability by way of penalty for reasons which may in given circumstances be beyond his control and/or for delay which may be minimal. The possibility of achieving the object of deterrence in such cases can be achieved by imposing a less drastic restraint. In point of fact when we contrast these provisions with Section 37 of the Act, it becomes clear how arbitrary and excessive they are.

Under Section 37(3), the statute itself provides in all cases where no other penalty is provided by the Act that a penalty not exceeding Rs.5,000/- alone can be levied. Sub- Section(4) is even more telling. Even in cases where there is a clandestine removal of excisable goods, and cases where the assessee intends to evade payment of duty, the assessee is liable to a penalty not exceeding the duty leviable on such goods or Rs.10,000/- whichever is greater. It will be noticed that the Act is very circumspect in laying down penalty provisions. Penalties in given circumstances extend only to Rs.5,000/- and Rs.10,000/- which are small amounts. Further, even where clandestine removal and intent to evade duty are present, yet the authorities are given a discretion to levy a penalty higher than Rs.10,000/- but not exceeding the duty leviable. In a given case, therefore, even where there is willful intent to evade duty and the duty amount comes to say a crore of rupees, the authorities can in the facts and circumstances of a given case, levy a penalty of say Rs.25,00,000/- or Rs.50,00,000/-. This being the position, it is clear that when contrasted with the provisions of the Central Excise Act itself, the penalty provisions contained in Rules 96ZO, 96 ZP and 96 ZQ are both arbitrary and excessive.

A penalty can only be levied by authority of statutory law, and Section 37 of the Act, does not expressly authorize the Government to levy penalty higher than Rs.5,000/-. This further shows that imposition of a mandatory penalty equal to the amount of duty not being by statute would itself make rules 96ZO, 96 ZP and 96 ZQ without authority of law. We, therefore, uphold the contention of the assessees in all these cases and strike down rules 96ZO, 96 ZP and 96 ZQ insofar as they impose a mandatory penalty equivalent to the amount of duty on the ground that these provisions are violative of Article 14, 19(1)(g) and are ultra vires the Central Excise Act.

Conclusion

We have declared in this judgment that the interest and penalty provisions under the Rules 96ZO, ZP, and ZQ of the Central Excise Rules, 1994 are invalid for the reasons assigned in the judgment. Accordingly, the appeals filed by the Revenue are dismissed and the appeals filed by the assessees are allowed. It may be noted that in an appeal from a judgment of the Allahabad High Court dated 8.11.2012 in SLP (C) No. 9796/2012, it has been held that the levy of penalty under the aforesaid provisions is mandatory in character. In view of what has been held by us today, this appeal will also have to be allowed in the same terms as the other assessees' appeals which have been allowed. All the aforesaid appeals are disposed of accordingly.

(See 2015-TIOL-283-SC-CX)


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