Hon'ble Prakash Krishna,J.
(DELIVERED BY HON'BLE ASHOK BHUSHAN,J.) This appeal under section 35G (2) of the Central Excise Act, 1944 has been filed against the judgment and order dated 20.7.2004, passed by Custom Excise and Service Tax Appellate Tribunal in Appeal No. E/642/2004-B. The appeal has been admitted by this court on the following substantial question of law:
"i) Whether the appellate Tribunal on the facts and circumstances of the case could reduce the penalty amount, which is less than the amount of penalty specified under section 11 AC of the Central Excise Act, 1944."
The brief facts of the case which are necessary to be noted for deciding this appeal are; M/s Majestic Auto Ltd. (respondent in this appeal) are engaged in the manufacture of two wheelers scooters and mopeds. A team of Central Excise Officers of Preventive Unit Meerut-I made a surprise visit to the factory premises on 10.1.2011. The officers conducted physical verification of the finished goods. On comparison of stock of finished goods, it was found that 276 numbers of two wheelers of different models were in excess and 365 number of two wheelers of different models were short. A Panchnama was prepared on the spot. The stock of excess finished goods were seized which were subsequently released on bond along with bank guarantee. A show cause notice dated 8.7.2001 was issued to the respondents as to why -
(i)Seized 276 nos of two wheelers should not be confiscated under rule 173Q(I(b) of CEA, 1994.
(ii)Duty amounting to Rs. 6,23,391 and automobile Cess of Rs. 4870 should be recovered under section 11A of CEA, 1994 in respect of the 365 nos of two wheelers found short.
(iii)Why interest under section 11AB may not be recovered.
(iv)And why penalty under rule 173Q of CEA, 1994 may not be imposed.
The adjudicating officer by order dated 25.10.2001 confiscated the seized two wheelers. However, since the goods were provisionally released a fine of Rs. 5 lacs in lieu of confiscation was imposed. Demand of Rs. 6,23,391/- levied on 365 numbers of two wheelers found short was confirmed. A penalty of Rs. 6,23,391/- was also imposed. An appeal was filed by the respondent to the Commissioner of Appeals, who by order dated 29.10.2003 rejected the appeal, while upholding the order in original. The respondent filed further appeal before Custom Excise and Service Tax Appellate Tribunal against the order of Commissioner Appeals. The Tribunal reduced the redemption fine of Rs. 2 lacs and further reduced the penalty of Rs. 3 lacs. Subject to above modification, the order impugned in the appeal was upheld. The appeal was accordingly disposed of.
Sri V.K. Singh Raghubansi, learned Counsel appearing for the appellant challenging the order of the Tribunal contended that the Tribunal committed an error in reducing the penalty. He submitted that under section 11AC of the Central Excise Act, 1944 (hereinafter referred to Act, 1944) the imposition of penalty equal to the duties determined is mandatory. He submits that there is no discretion with the Tribunal to reduce the penalty and the order of the Tribunal reducing the penalty is without jurisdiction. It is further submitted that the Tribunal while reducing the penalty has not given any reason for such reduction.
Sri Piyush Agrawal, learned Counsel for the respondent refuting the submissions of learned counsel for the appellant contended that the Tribunal for good and sufficient reason has reduced the penalty and the power to reduce the penalty has to be read in the Tribunal in doing complete justice between the parties. He submits that imposition of penalty is not mandatory and the imposition of penalty is permissible only on fulfilling the conditions as enumerated under section 11AC. He submits that pre-condition for imposition of penalty being not satisfied infact no penalty was liable to be levied on the respondent. Reliance has been placed by Sri Agrawal on the judgements of the apex Court in 2009(238) ELT 3 Union of India Vs. Rajasthan Spinning & Weaving Mills, 1998 (99) ELT 33 State of Madhya Pradesh Vs. Bharat Heavy Electrical and 1999 (112) E.L.T, 772 Zunjarrao Bhikaji Nagarkar Vs. Union of India.
We have considered the submissions of learned counsel for the parties and have perused the record.
The question to be answered in the appeal is as to whether under section 11 AC, the Tribunal has jurisdiction to reduce the amount of penalty. Before we proceed to consider the respective submissions, it is useful to look into the provisions of Section 11AC. Section 11 AC of the Act, 1944 is as follows:
"SECTION 11AC. Penalty for short-levy or non-levy of duty in certain cases. -- The amount of penalty for non-levy or short-levy or non-payment or short payment or erroneous refund shall be as follows :-
(a) where any duty of excise has not been levied or paid or short-levied or short paid or erroneously refunded, by reason of fraud or collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made there under with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (10) of section 11A shall also be liable to pay a penalty equal to the duty so determined;
(b) where details of any transaction available in the specified records, reveal that any duty of excise has not been levied or paid or short-levied or short-paid or erroneously refunded as referred to in sub-section (5) of section 11A, the person who is liable to pay duty as determined under sub-section (10) of section 11A shall also be liable to pay a penalty equal to fifty per cent of the duty so determined;
(c) where any duty as determined under sub-section (10) of section 11A and the interest payable thereon under section 11AA in respect of transactions referred to in clause (b) is paid within thirty days of the date of communication of order of the Central Excise Officer who has determined such duty, the amount of penalty liable to be paid by such person shall be twenty-five per cent of the duty so determined;
(d) where the appellate authority modifies the amount of duty of excise determined by the Central Excise Officer under sub-section (10) of section 11A, then, the amount of penalties and interest payable shall stand modified accordingly and after taking into account the amount of duty of excise so modified, the person who is liable to pay duty as determined under subsection (10) of section 11A shall also be liable to pay such amount of penalty or interest so modified.
Explanation.--For the removal of doubts, it is hereby declared that in a case where a notice has been served under sub-section (4) of section 11A and subsequent to issue of such notice, the Central Excise Officer is of the opinion that the transactions in respect of which notice was issued have been recorded in specified records and the case falls under sub-section (5), penalty equal to fifty per cent of the duty shall be leviable.
(2)Where the amount as modified by the appellate authority is more than the amount determined under sub-section (10) of section 11A by the Central Excise Officer, the time within which the interest or penalty is payable under this Act shall be counted from the date of the order of the appellate authority in respect of such increased amount." to be tallied Section 11 AC has been inserted in the Act by Act No. 33 of 1996 w.e.f. 28.9.1996. Further amendment in Section 11 AC was brought by Act No. 10 of 2000.
A plain reading of Section 11AC indicates that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the Rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (10) of section 11A shall also be liable to pay a penalty equal to the duty so determined. The payment of penalty thus is simultaneous and consequential to the payment of duty under sub-section (10) of Section 11A. Thus, when fraud, collusion or any wilful misstatement or suppression of fact or contravention of any of the provisions of the Act or Rules with intent to evade payment of duty is proved, apart from payment of duty, payment of penalty is consequential. The use of word "shall" indicates an imperative requirement and the payment of penalty is with object to punish person who evade duty on account of fraud collusion or wilful misstatement and with intention to evade payment of duty. The question is as to whether when the Statute itself provides the amount of penalty equal to the duty, whether any discretion is to be read in the adjudicating authority or the appellate authority to reduce the amount of penalty. The answer to the said question is to be found out from the scheme of the Act itself. Proviso to Section 11AC contains a circumstance where a reduced penalty of 25% can be paid by a person on whom duty has been determined under sub-section (2) of Section 11A. The circumstance is that when duty so determined along with interest is paid within 30 days from the date of commencement of the order of the Central Excise Officer, the amount of penalty be 25% which has also be paid within 30 days. Thus, the circumstance in which the amount of penalty can be reduced is also provided under section 11 AC itself. To read any discretion to reduce the amount of penalty contrary to the scheme of the Act shall be adding words to Section which is impermissible on principles of statutory interpretation. When the benefit of reduced penalty of 25% is envisaged on payment within 30 days of the duty along with interest and penalty reading any discretion to reduce the penalty in the authorities even though the payment is not made within 30 days, shall not be in consonance with the scheme of the Act. Thus, reduction of penalty when has been statutory contemplated in one situation any other circumstance for reduction of penalty cannot be read into the provision. Thus, when condition for imposing penalty under section 11 AC are fulfilled, no discretion can be read into the adjudicating authority or the appellate authority to impose any other penalty not contemplated under section 11AC. The issue had come for consideration before the apex Court in several cases. In 1999 (112)ELT 772 Zunjarrao Bhikaji Nagarkar Vs. Union of India, the provisions of Section 11AC and Rule 173 came for consideration in context of initiation of disciplinary inquiry against a Collector/Commissioner of Central Excise in not levying penalty even though duty was determined under section 11A(2). The apex Court laid down in the said case that imposition of penalty was not discretionary. In context of Rule 173Q, it was held that it is only the amount of penalty which is discretionary in Rule 173Q. The penalty could have been levied not exceeding three times of the duty, the three times, the value of the executable goods. However, under section 11AC there is no variable with regard to amount of penalty and the amount of penalty to be imposed is statutorily fixed. It is relevant to refer to paragraphs 30, 31,32 of the judgment which are to the following effect:
"30. Two principal issues arise for our consideration: (1) if levy of penalty under Rule 173Q was obligatory and (2) was there enough background material for the Central Government to form a prima facie opinion to proceed against the officer on the charge of misconduct on his failure to levy penalty under Rule 173Q. Appellant has contended that it is only now after insertion of Section 11AC in the Act that levy of penalty has become mandatory and that it was not so under Rule 173Q. This contention does not appear to be correct. In both Rule 173Q and Section 11AC the language is somewhat similar. Under Rule 173Q "such goods shall be liable to confiscation" and the person concerned "shall be liable to penalty" not exceeding three times the value of excisable goods or five thousand rupees whichever is greater. Under Section 11AC the person, who is liable to pay duty on the excisable goods as determined "shall also be liable to pay penalty equal to the duty so determined". What is the significance of the word "liable" used both in Rule 173Q and Section 11AC? Under Rule 173Q apart from confiscation of the goods the person concerned is liable to penalty. Under Section 11AC the word "also" has been used but that does not appear to be quite material in interpreting the word "liable" and if liability to pay penalty has to be fixed by the adjudicating authority. The word "liable" in the Concise Oxford Dictionary means, "legally bound, subject to a tax or penalty, under an obligation". In Black's Law Dictionary (sixth edition), the word "liable' means, "bound or obliged in law or equity; responsible; chargeable; answerable; compellable to make satisfaction, compensation, or restitution.... Obligated; accountable for or chargeable with. Condition of being bound to respond because a wrong has occurred. Condition out of which a legal liability might arise.... Justly or legally responsible or answerable".
31. When we examine Rule 173Q it does appear to us that apart from the offending goods which are liable to confiscation the person concerned with that shall be liable to penalty upto the amount specified in the Rule. It is difficult to accept the argument of the appellant that levy of penalty is discretionary. It is only the amount of penalty which is discretionary. Both things are necessary: (1) goods are liable to confiscation and (2) person concerned is liable to penalty. We may contrast the provisions of Rule 173Q and Section 11AC with Section 271 of the Income-tax Atc, 1961. This Section, prior to amendment in 1988, stood as under :
"Failure to furnish returns, comply with notices, concealment of income, etc. 271. (1) If the Income Tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) in the course of any proceedings under this Act is satisfied that any person -
(a) has failed to furnish the return of total income which he was required to furnish under sub-section (1) of Section 139 or by notice given under sub-section (2) of section 139 or section 148 or has failed to furnish it within the time allowed and in the manner required by sub- section (1) of section 139 or by such notice as the case may be, or
(b) has without reasonable cause failed to comply with a notice under sub- section (1) of section 142 or sub- section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142, or
(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--
(i) in the cases referred to in clause (a),-
(a) in the case of a person referred to in sub-section (4A) of section 139, where the total income in respect of which he is assessable as a representative assessee does not exceed the maximum amount which is not chargeable to income-tax, a sum not exceeding one per cent of the total income computed under this Act without giving effect to the provisions of sections 11 and 12 for each year or part thereof during which the default continued;
(b) in any other case, in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent of the assessed tax for every month during which the default continued.
Explanation.- In this clause "assessed tax" means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C;
(ii) in the cases referred to in clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent but which shall not exceed fifty per cent of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income;
(iii)in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income: ..."
32. It would, thus, be seen that under provisions of Section 271 of the Income Tax Act in the first instance there is a discretion with the assessing authority whether to impose any penalty or not and if the assessing authority finds that it is a case for imposition of penalty then it has no discretion in the matter and the certain amount of penalty depending on the facts and circumstances of each case has to be imposed subject to the maximum limit mentioned in the section"
Although in the above case, the apex Court took the view that when the penalty was not levied, the assessee was certainly benefited but there was nothing to show that officer had favoured the assessee and no misconduct can be proved against the officer hence, the disciplinary proceedings were quashed. But the argument that imposition of penalty was discretionary was rejected. The judgment of the apex Court in State of Madhya Pradesh Vs. Bharat Heavy Electrical (supra) has been relied by learned counsel for the appellant in which case, the apex Court interpreted the provisions of Section 7(5) of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976. The High Court struck down the said provisions on the ground that it was confiscatory in nature and ultra-vires. Section 7(5) contained a provision that registered dealers shall be liable to pay the penalty equal to 10 times the amount of entry tax payable. The arguments before the apex Court on behalf of the State was that provisions of Section 7(5) was to be read down and the submission on behalf of the State was advanced that ten times is the maximum limit and not a fixed amount of penalty and there was no discretion in for imposition of lesser penalty. The apex Court on the aforesaid fact set aside the judgment of the High Court and held Section 7(5) as intra-vires. Following was laid down in paragraphs 11 to 13:
" 11. In our opinion Mr. Sanghi is right in submitting that Section 7 should be read as containing a rebuttable presumption. This would mean that it will be open to the registered dealer to satisfy the authorities concerned that the non-submission of the statement under sub-section [1] and [2] of Section 7 was not with the intention to facilitate the evasion of the entry tax. In other words, sub-section [5] of Section 7 places the burden of proof on the registered dealer to show that the non-submission of the statement under sub-sections [1] and [2] of Section 7 was not with a view to facilitate the evasion of entry tax. If a registered dealer is unable to satisfy the authorities in this regard then in the absence of satisfaction, the presumption is that non-submission of statement has facilitate the evasion of entry tax. Construing Section 7(5) to contain a rebuttable presumption it does not suffer from any vice. It cannot then he held invalid as conducted by the High Court. It is the misconstruction of the provision which misted the High Court to the contrary conclusion.
12. It is not necessary for us to decide whether the provision for levy of penalty equal to ten times the amount of entry tax would be confiscatory and therefore, ultra vires since Mr. Sanghi, in fairness, submitted that the State treats is as the maximum limit and not fixed amount of penalty leaving no discretion for imposition of lesser penalty. This stand of the State itself concedes that the assessing authorities are not bound to levy fixed penalty equal to ten times the amount of entry tax whenever the provision of Section 7[5] are attracted. Depending upon the facts of each case the assessing authority has to decide as to what would be the reasonable amount of penalty to be imposed the maximum being ten times the amount of the entry tax. So construed sub-section [5] of Section 7 cannot be regard as confiscatory. Consequently, this also cannot be a ground for holding Section 7[5] to be ultra vires.
13. From the aforesaid it follows that Section 7[5] has to be construed to mean that the presumption contained therein is rebuttable and secondly the penalty of ten time the amount of entry tax stipulated therein is only the maximum amount which could be levied and the assessing authority has the discretion to levy lesser amount, depending upon the facts and circumstances of each case. Construing Section 7[5] in this manner the decision of the High Court that Section 7[5] is ultra vires cannot be sustained."
The above judgment does not help the respondent in the present case for two reasons; firstly a provision which is under consideration in the present appeal under section 11AC was not up for consideration in the said case and secondly, the learned counsel for the State itself has conceded that amount of penalty i.e. 10 times was not a fixed amount and there was a discretion in the authority for imposing the penalty and the presumption was rebuttable. The said judgment was thus on concession as made by learned counsel for the State before the apex Court hence, the said judgment is of no help to the respondent in the present case.
The next judgment to be considered is the judgment of the apex Court in 2005 (182) E.L.T. 289 Commissioner of Central Excise, Chandigarh-I Vs. Dabur (India) Ltd. In the said case also the Tribunal had reduced the quantum of penalty. On an appeal filed by the Commissioner Central Excise, the apex Court noticed the submission but the question as to whether the Tribunal had power to reduce the penalty was left open and not decided. The judgment of the apex Court in 2008 (231) E.L.T. 3 Union of India Vs. Dharmendra Textile Processors had occasion to consider Section 11AC of the Act. The questions which was up for consideration was as to whether there was a scope for levying penalty below the prescribed minimum under section 11AC. After considering the earlier judgment, it was held that there is no scope for any discretion in imposing the penalty. It is useful to refer to paragraphs 2,8,13,14 and 26 which are as follows:
"2. A Division Bench of this Court has referred the controversy involved in these appeals to a larger Bench doubting the correctness of the view expressed in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. 2007 (8) SCALE 304. The question which arises for determination in all these appeals is whether Section 11AC of the Central Excise Act, 1944 (in short the `Act') inserted by Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income Tax Act, 1961 (in short the `IT Act') taking the stand that Section 11AC of the Act is identically worded and in a given case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules, 1944 (in short the `Rules') and a decision of this Court in Chairman, SEBI v. Shriram Mutual Fund and Anr. MANU/SC/8185/2006: AIR2006SC2287 and was of the view that the basic scheme for imposition of penalty under Section 271(1)(c) of IT Act, Section 11AC of the Act and Rule 96ZQ(5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI's case (supra) and not in Dilip Shroff's case (supra). Therefore, the matter was referred to a larger Bench.
8. It is submitted that various degrees of culpability cannot be placed on the same pedestal. Section 11AC can be construed in a manner by reading into it the discretion. That would be the proper way to give effect to the statutory intention....
13. It is a well-settled principle in law that the court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. Similar is the position for conditions stipulated in advertisements.
14. Words and phrases are symbols that stimulate mental references to referents. The object of interpreting a statute is to ascertain the intention of the legislature enacting it. See Institute of Chartered Accountants of India v. Price Waterhouse 1977 6 SCC 312. The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner (1846) 6 MOO PC1, the courts cannot aid the legislature's defective phrasing of an Act, they cannot add or mend, and by construction make up deficiencies which are left there. See State of Gujarat v. Dilipbhai Nathjibhai Patel MANU/SC/0989/1998 : [1998]2SCR56 . It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. See Stock v. Frank Jones (Tipton) Ltd 1978 (1) ALL ER 948. Rules of interpretation do not permit the courts to do so, unless the provision as it stands is meaningless or of doubtful meaning. The courts are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself. (Per Lord Loreburn, L.C. in Vickers Sons")
26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given."
Again in Union of India Vs. Rajasthan Spinning & Weaving Mills (supra), the provision of Section 11AC came up for consideration. In the said case, the judgment of the Apex Court in Dharmendra Textile (supra) was also considered. Paragraphs 17 to 23, which are relevant, are quoted as below:
"17. The main body of Section 11AC lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced.
18. One can not fail to notice that both the proviso to Sub section 1 of Section 11A and Section 11AC use the same expressions: "...by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty...." In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A (1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.
19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section.
20. At this stage, we need to examine the recent decision of this Court in Dharamendra Textile (supra). In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non-payment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam,J.) was a party to the decision in Dharamendra Textile and we see no reason to understand or read that decision in that manner. In Dharamendra Textile the court framed the issues before it, in paragraph 2 of the decision, as follows:
2. A Division Bench of this Court has referred the controversy involved in these appeals to a larger Bench doubting the correctness of the view expressed in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. MANU/SC/3182/2007 :2007 (8) SCALE 304. The question which arises for determination in all these appeals is whether Section 11AC of the Central Excise Act, 1944 (in short the `Act') inserted by Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income Tax Act, 1961 (in short the `IT Act') taking the stand that Section 11AC of the Act is identically worded and in a given case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules, 1944 (in short the `Rules') and a decision of this Court in Chairman, SEBI v. Shriram Mutual Fund and Anr. MANU/SC/8185/2006 : AIR2006SC2287 and was of the view that the basic scheme for imposition of penalty under Section 271(1)(c) of IT Act, Section 11AC of the Act and Rule 96ZQ(5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI's case (supra) and not in Dilip Shroff's case (supra). Therefore, the matter was referred to a larger Bench.
After referring to a number of decisions on interpretation and construction of statutory provisions, in paragraphs 26 and 27 of the decision, the court observed and held as follows:
26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.
27. Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff's case (supra) was not correctly decided but Chairman, SEBI's case (supra) has analysed the legal position in the correct perspectives. The reference is answered....
21. From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that Section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application.
22. There is another very strong reason for holding that Dharamendra Textile could not have interpreted Section 11AC in the manner as suggested because in that case that was not even the stand of the revenue. In paragraph 5 of the decision the court noted the submission made on behalf of the revenue as follows:
5. Mr. Chandrashekharan, Additional Solicitor General submitted that in Rules 96ZQ and 96ZO there is no reference to any mens rea as in Section 11AC where mens rea is prescribed statutorily. This is clear from the extended period of limitation permissible under Section 11A of the Act. It is in essence submitted that the penalty is for statutory offence. It is pointed out that the proviso to Section 11A deals with the time for initiation of action. Section 11AC is only a mechanism for computation and the quantum of penalty. It is stated that the consequences of fraud etc. relate to the extended period of limitation and the onus is on the revenue to establish that the extended period of limitation is applicable. Once that hurdle is crossed by the revenue, the assessee is exposed to penalty and the quantum of penalty is fixed. It is pointed out that even if in some statues mens rea is specifically provided for, so is the limit or imposition of penalty, that is the maximum fixed or the quantum has to be between two limits fixed. In the cases at hand, there is no variable and, therefore, no discretion. It is pointed out that prior to insertion of Section 11AC, Rule 173Q was in vogue in which no mens rea was provided for. It only stated "which he knows or has reason to believe". The said clause referred to wilful action. According to learned Counsel what was inferentially provided in some respects in Rule 173Q, now stands explicitly provided in Section 11AC. Where the outer limit of penalty is fixed and the statute provides that it should not exceed a particular limit, that itself indicates scope for discretion but that is not the case here.
23. The decision in Dharamendra Textile must, therefore, 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 penalty must be imposed equal to the duty determined under Sub-section (2) of Section 11A. That is what Dharamendra Textile decides"
From the proposition as laid down in above cases, the ratio deducible is that the quantum of the penalty equal to the duty determined as contemplated by Section 11AC is mandatory and there is no discretion in the adjudicating authority or the Tribunal to impose different amount of penalty. In a case where penalty is leviable under section 11AC on fulfilment of the conditions as enumerated in Section 11AC, the penalty equal to the amount of duty determined is mandatory and there is no discretion in the Tribunal to reduce the said penalty. However, as laid down by the apex Court in Union of India Vs. Rajasthan Spinning and Weaving Mills (supra), the penalty under section 11AC can be imposed only when conditions mentioned in Section 11AC exist. The authorities have no discretion in fixing the quantum of penalty and penalty equal to the duty must be imposed once section 11Ac is made applicable.
In view of the foregoing discussions, the question of law is answered in favour of the revenue in following manner.
"The appellate Tribunal had no discretion to reduce the amount of penalty as specified under section 11 AC"
The appeal is allowed. Parties shall bear their own cost.
Date :- 6.7.2012 LA/-