The question involved in this matter was interpretation of Rule 5 of the compounding Rules. The relevant rule read as,
“upto 20% of the the value of the offending goods or Rupess ten laks which ever is higher”
In this matter interpretation of the term “upto” was involved. More specifically the court was called on to decide whether the term “upto” qualifies only the term “20% of the value of the goods” or both the terms “20% of the value of goods or 10 lakhs”.
As far as the term “whichever is higher” is concerned, it simply refers to the fact we have to take the value out of “20% of the value of goods” and “10 lakhs” and apply the higher value.
Facts of the case:
The petitioner was being prosecuted for an offence under Customs Act for the last 12 years. The value of the offending goods was Rs. Eight lakhs (approx). 20% of the value of goods comes out to be approx 1.6 lakhs. The compounding authority comes to the conclusion that out of 1.6 lakhs and 10 lakhs, 10 lakhs is higher and hence imposed a compounding amount of Rs. 10 lakhs.
The petitioner submitted that the term upto qualifies both the parts and hence the compounding amount should be “upto 10 lakhs”. The petitioner further pleaded that since the compounding amount is “upto 10 lakhs”, the compounding amount should be fixed after taking into the consideration of various factors.
Grounds:
The term upto is there. It qualifies some value. The only dispute in this case was whether it qualifies only the first part, i.e. 20% of the value of goods or both parts, 20% of the value of goods or Rs. 10 lakhs. The departmental authority has come to the conclusion that it qualifies only the first part, i.e. 20% of the market value of goods. Relevant portion of the order reads as,
“for the offence specified under section 135(1)(a), compounding amount has been specified as upto 20% market value of the goods or rupees ten lakhs which ever is higher. In the instant case 20% of the market value of the goods comes to Rs. 1,69,035.20. therefore, compounding amount is required to be Rupees ten lakhs.”
This interpretation was challenged on these grounds.
Anomaly: The petitioner pleaded that if we take the departmental interpretation it will result into anomaly. It will result into comparing two unlike quantities. The first part will be qualified by the term upto, whereas the second part will not have this term. These two unlike quantities cannot be compared. For example we cannot compare “upto 20 lakhs” and “10 lakhs”. Because the terms “upto 20 lakhs contains a value 5 lakhs, which is less than 10 lakhs; and it also contains a value of 15 lakhs which is higher than 10 lakhs. In view of this interpretation results into anamoly, and hence it must be rejected.
Absurdity: The petitioner further pleaded that such interpretation will result into absurdity. For example if the value of offending goods is Rs 5 lakhs, the compounding amount shall be 10 lakhs as per the departmental interpretation. However if the value of offending goods is 55 lakhs, the compounding amount shall be “upto 11 lakhs”. Thus the authority may impose a lesser compounding amount than 10 lakhs, if the value of offending goods is 55 lakhs. It results into lesser compounding amount when the value of offending goods is higher, whereas the authority is bound to impose a higher compounding amount in petty cases. This result into absurdity and such interpretation must be rejected.
Defeat of purpose: The petitioner further pleaded that the purpose of compounding provision is reduce litigation and early settlement of disputes. In support of this contention the petitioner relied upon the CBEC Circular No. 54/2005-Cus. dated 30.12.2005. The petitioner further pleaded that such interpretation will result in a minimum compounding amount of Rs. 10 lakhs, which petty offenders cannot afford. Thus it will result into defeating the very purpose of the compounding provision. The petitioner further argued that it is a welfare legislation and also a beneficial piece of legislation and must not be construed in a manner so that it goes beyond the capacity of petty one time offenders.
Burden on subject: The petitioner further argued that compounding amount is a burden on the subject, and if two reasonable interpretation is possible, the one which reduces the burden on the subject should be preferred.
The petitioner also pleaded on strict interpretation of taxation statutes. The petitioner further argued that even when law prescribes mandatory penalty, the court has held that imposition of lesser amount of penalty is justified by the adjudication authority. Readers may refer to interpretation of Section 11AC of the Central Excise Act. In view of this the petitioner submit that departmental interpretation be rejected and a lesser amount of compounding fee should be imposed on the petitioner.
For lesser amount of compounding fee the petitioner relied on following grounds. Let me quote from the petition;
The appellant submits that on the correct interpretation the compounding amount is “upto 10 lakhs”. On this interpretation, while fixing the compounding amount, the Ld. Chief Commissioner should have taken into consideration following facts and circumstances:-
(i) That it is the first offence of the appellant. Further it is the only offence of the appellant and there is no allegation, apart from this, against the appellant either under Customs Law or under any other law.
(ii) That at the time of alleged offence, the appellant went through Red Channel, declared certain goods and paid duty on that. The only allegation is that he failed to declare some other goods.
(iii) That the goods allegedly valued more than 8 lakhs, which the appellants fails to declare has been “absolutely confiscated” and has already been appropriated by the Central Government.
(iv) That, at the time of alleged offence a penalty of Rupees 15000/- was imposed on the appellant and he has paid that.
(v) That the appellant was arrested and suffered custody for one week.
(vi) That the appellant is suffering prosecution for the last 12 years. Such long prosecution of the appellant amounts to denial of “Right to speedy trial” to the appellant.
(vii) That the appellant is suffering from depression and other medical problems and is still on medical supervision.
(viii) That the appellant financial position is precarious and his capacity to pay compounding amount is very limited.
The Appellant submits that in view of these facts and circumstances only a nominal compounding amount should have been imposed on the appellant. The appellant further submits that there is no dispute about the existence of these facts, and the facts has been relied upon/mentioned by the Ld. Chief Commissioner in the impugned order.
In view of these facts, this author of the opinion that justice could not be delivered in this case. I am sure such interpretational fallacy will be cured at the earliest opportunity by Hon’ble Court.
AFTERWARDS:
The petitioner could not pay the compounding amount of Rs. 10 lakhs and informed the department that he is not in a position to pay the amount and hence he will suffer prosecution.
Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on custom.excise@gmail.com , Web: www.rajeshkumar.co.in
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