Whether Rs.5000/- is a minimum penalty that is required to be imposed in terms of Rule 25 of the Central Excise Rules, 2002 ?
Even where a minimum penalty is prescribed, the authority has discretion to impose a lesser penalty depending on the facts and circumstances of the case.
The amount mentioned in Rule 173Q(1) of the 1944 Rules or Rule 25(1) of the 2002 Rules is the maximum, and not the minimum. The amount shall not exceed the duty determined; if it is more than rupees five thousand, or rupees five thousand if the duty determined is less than rupees five thousand.
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI
SERVICE TAX APPEAL NO.464 OF 2007-SM(BR)
[Arising out of order-in-appeal No. 34/CE/BPL/2007 dated 18.6.2007 passed by the Commissioner of Central Excise (Appeals), Bhopal]
Date of Hearing: 17.03.2008
Date of Decision: 07 .04.2008
M/s. Rama Wood Craft (P) Ltd.
O R D E R
Per Justice S.N.Jha:
1. This appeal has been referred to Larger Bench on the following question :-
“ Whether Rs.5000/- is a minimum penalty that is required to be imposed in terms of Rule 25 of the Central Excise Rules, 2002 ?”
2. It may be stated at the very outset that Rs.5000/- was the penalty prescribed in Rule 173Q of the Central Excise Rules, 1944, corresponding to Rule 25 of the Central Excise Rules 2002. Rule 25 of the 2002 Rules provides for the (alternate) penalty of Rs.10,000/-. By amendment under Notification No.8/2007 dated 1.3.2007, effective from 11.5.2007, the amount Rs.2000/- has been substituted for Rs.10,000/-. Reference to the amount or the rule in the reference order (supra) or in this order hereinafter may be understood accordingly mutatis mutandis.
The issue has been referred to Larger Bench in view of two conflicting decisions of the Single Member Bench in CCE, Lucknow Vs. Kisan Sahkari Chini Mills Ltd. 2006 (193) ELT 365 (Tribunal) and CCE, Lucknow Vs. Sarjoo Sahkari Chini Mills 2006 (204) ELT 478 (Tribunal). In the former it was held that no minimum amount of penalty has been prescribed in Rule 173Q of the Central Excise Rules, 1944. In the latter case it was held that penalty of Rs.5000/- is minimum penalty which is required to be imposed under the rule.
3. In another case, CCE, Lucknow Vs. Manoj Jaiswal 2007 (213) ELT 115 (Tri.-Del.) to which our attention was drawn, it has been held that decision in Kisan Sahkari Chini Mills Ltd. (supra) cannot be regarded as good law in view of the Division Bench decision in Bharat Petroleum Corporation Ltd. Vs. CCE, Cochin 2005 (191) ELT 1128 (Tri.-Bang.). We may mention here that in Bharat Petroleum Corporation Ltd. case there is no discussion as to whether the penalty prescribed under Rule 173Q is minimum or any discretion is left with the adjudicating authority to impose lesser penalty. From the judgment it does not appear that the point was even canvassed before the Bench. No doubt, at the end of the paragraph towards end of the judgment, there is observation that heavy penalty of Rs.1,00,000/- applicable under Rule 173Q(1) for contravening Clause (a) is not called for, or sustained in this case, “the minimum penalty prescribed under Rule 173Q(1) of Rs.5,000/- is only required to be confirmed”. Except the word “minimum” there is nothing in the judgment to suggest that the Bench intended to lay down the law that Rs.5000/- is the minimum penalty which could be imposed under Rule 173Q. It is well settled that a judgment is an authority, and can be regarded as a precedent only on the point which was canvassed, debated and decided. Any observation or finding beyond the issue (s) raised can only be regarded as obiter dictum which may be binding only on the parties to the proceeding, but cannot be treated as a binding precedent. The decision in Bharat Petroleum Corporation Ltd. (supra), rendered by a Division Bench, therefore, cannot be treated as a precedent on the point.
4. Rule 25(1) of the Central Excise Rules, 2002 may be quoted at this stage in extenso as under :-
“Rule 25. Confiscation and penalty,- (1) Subject to the provisions of section 11 AC of the Act, if any producer, manufacturer, registered person of a warehouse or a registered dealer,-
(a) removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules; or
(b) does not account for any excisable goods produced or manufactured or stored by him; or
(c) engages in the manufacture, production or storage of any excisable goods without having applied for the registration certificate required under section 6 of the Act; or
(d) contravenes any of the provisions of these rules or the notifications issued under these rules with intent to evade payment of duty,
then all such goods shall be liable to confiscation and the producer or manufacturer or registered person of the warehouse or a registered dealer, as the case may be, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention of the nature referred to in clause (a) or clause (b) or clause (c) or clause (d) has been committed, or rupees ten thousand (now rupees two thousand), whichever is greater.”
5. The first thing which strikes notice on a reading of the rule is that the provisions are “subject to the provisions of Section 11AC of the Act” i.e. Central Excise Act. Therefore, in order to construe the meaning and scope of the rule, it is necessary to look into the provisions of Section 11AC. Section 11AC- omitting the provisos- runs as under :-
“Section 11AC. Penalty for short-levy or non-levy of duty in certain cases.- When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any willful 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, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined.”
On a plain reading it is manifest that where a case of fraud etc. is proved, the person is also liable to pay a penalty “equal to the duty” determined. On a combined reading of Section 11 AC of the Act and Rule 25 of the Rules it would thus appear that the amount of penalty cannot exceed the amount of duty as determined against the person. It may not be out of place to mention here that under Rule 173Q(1) of the 1944 Rules, as it stood, a penalty not exceeding three times the value of excisable goods in respect of which contravention of the nature mentioned therein had been committed could be imposed. Having regard to the mandate of Section 11AC there is little scope for doubt that penalty exceeding the amount of duty cannot be imposed. It is well known that rules framed by the appropriate Government in exercise of rule making power conferred upon by the Statute cannot run counter to or at variance with the provisions of the Statute being a piece of subordinate legislation. Any provision in conflict with the statute, therefore, will have to be read down to that extent.
6. The second thing which strikes our attention on a close reading of the rule is that the words “not exceeding” occurring therein govern both alternative penalties. In other words, the penalty shall not exceed either the duty on excisable goods (in respect of which any contravention of the nature referred to in clauses (a), (b), (c) or (d) has been committed), or rupees five thousand, whichever is greater. Thus, where the duty determined against the person is more than rupees five thousand, the penalty shall not exceed amount of duty; where the duty is less than rupees five thousand, it shall not exceed that amount. In Kisan Sahkari Chini Mills Ltd. (supra) the Single Member Bench reached more or less the same conclusion while construing the provisions of Rule 173Q. It will be useful to quote the relevant observations in para 9 of the judgment in extenso as under :-
“9-..Rule 173(Q)(1)(a)of the said rules, inter alia, provides that if any manufacturer removes any excisable goods in contravention of any of the provisions of the said rules, then all such goods shall be liable to confiscation and the manufacturer shall be liable to a penalty not exceeding three times the value of the excisable goods or Rs.5,000/- whichever is greater. This would mean that penalty that can be imposed under the said provisions, will not be more than thrice the value of the excisable goods or Rs.5,000/- whichever is greater and that would become the maximum limit. If thrice the value of the excisable goods comes to less than Rs.5,000/- then also the penalty can be imposed upto Rs.5,000/-. If, however, thrice the value of the excisable goods is more than Rs. 5000/- then such higher amount will be maximum limit upto which the penalty can be imposed. The words penalty not exceeding are indicative of the maximum amount upto which the penalty can be imposed which maximum will be Rs. 5,000/- only when the three times the value of the excisable goods was an amount lesser than Rs. 5,000/-. Therefore, there is no minimum amount of penalty prescribed under the said provision. It cannot be said that when three times of the value of excisable goods works out to be more than Rs. 5,000/- then in such cases Rs. 5,000/- should be treated as the minimum prescribed penalty. No such construction is warranted from the language of the said provision from which it is abundantly clear that it prescribes the maximum limit upto which the penalty can be imposed which maximum limit in no case be below Rs. 5,000/-. Whether the maximum is higher than Rs. 5,000/- or the maximum is to be taken as Rs. 5,000/- where the three times of the value of the excisable goods is below Rs. 5,000/- the discretion of the authority imposing penalty of any lesser amount is kept intact”.
7. We are of the view that the amount mentioned in Rule 173Q(1) of the 1944 Rules or Rule 25(1) of the 2002 Rules is the maximum, and not the minimum, and the decisions in Sarjoo Sahkari Chini Mills and Manoj Jaiswal do not lay down the law correctly and they deserve to be overruled. We may observe that where a provision is capable of two interpretations and two views are possible, the one which is liberal and in favour of the assessee must be accepted.
8. Our conclusion is in accord not only with the express provisions of the rule but also in consonance with the general principles. In Hindustan Steel Vs. State or Orissa 1978 (2) ELT 159, the law relating to penalty in cases of breach of statutory obligations was stated in these words :-
“ 7 -.An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in a defiance or law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide relief that the offender is not liable to act in the manner prescribed by the Statute.”
9. In State of Madhya Pradesh Vs. Bharat Heavy Electricals, 1998 (99) ELT 33(SC), the Supreme Court had occasion to consider a State enactment in terms of which the person was liable to pay penalty equal to ten times the amount of pre tax payable on the goods in case of contravention of the relevant provision. It was held that “the penalty of ten times 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 ulta vires cannot be sustained”.
10. From the above decisions it is clear that even where a minimum penalty is prescribed, the authority has discretion to impose a lesser penalty depending on the facts and circumstances of the case. It need hardly be emphasized that imposition of penalty is a penal action and therefore, there cannot be cut and dried formulae for quantifying the amount. The attending facts and circumstances, nature and gravity of the offence, defence of the person and the extent of evasion among other things will have to be taken into account in doing so.
11. It is not necessary to multiply decisions which are available in plenty. We wind up this discussion holding that the amount mentioned in Rule 173Q(1) of the 1944 Rules or Rule 25(1) of the 2002 Rules is the maximum, and not the minimum. The amount shall not exceed the duty determined; if it is more than rupees five thousand, or rupees five thousand if the duty determined is less than rupees five thousand. It is needless to say that while exercising discretion in fixing the amount, the authorities are supposed to give due regard to the relevant factors.
12. The reference is answered accordingly. Appeal may now be listed before the appropriate Bench for final disposal.
13. Before we part, we must acknowledge the able assistance provided to us by Shri V. Lakshmikumaran who appeared amicus curiae at our behest as the assessee was not represented.
[Pronounced in the open Court on 07-4-2008]