ORDER
1. This appeal has been preferred for decision of substantial questions of law proposed in para 4 of the memo of appeal as under:
(a) Whether CESTAT was correct in reducing the penalty amount which was imposed as an equivalent amount of duty under Section 11AC of the Central Excise Act, 1944?
(b) Whether without reducing the duty amount and without legal sanctity of any rule or section CESTAT is empowered to reduce the penalty amount, imposed by the adjudicating authority?
2. Relevant facts are that the assessee is engaged in the manufacture of “Pulsator”. They received item “Bush” from M/s. Electrolux Voltas Limited. While determining assessable value of the product “Pulsator”, they did not include value of “Bush”. On this account, demand of duty of Rs. 73,042/- with equal amount of penalty under Section 11AC of the Central Excise Act, 1944 (for short, ‘the Act’) and of Rs. 10,000/- under Rule 173Q of the Central Excise Rules (for short, ‘the Rules’) was confirmed by the adjudicating authority. The Commissioner (Appeals) affirmed the finding of the adjudicating authority for inclusion of value of “Bush” into the value of “Pulsator” for determining assessable value. However, the demand of duty was set aside on the ground of limitation.
3. The Tribunal set aside the finding of the Commissioner (Appeals) and held that the demand was within limitation as extended period of limitation raising the duty demand was rightly invoked. While confirming the duty demand, penalty was reduced to Rs. 10,000/-
4. Learned Counsel for the Revenue submitted that Section 11AC of the Act lays down that where 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 wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules with intent to evade payment of duty, penalty equal to the duty is liable to be paid. Under the proviso, the duty can be 25% if the amount is paid within thirty days. Section 11AC is reproduced below for ready reference:
11AC. Penalty for short-levy or non-levy of duty in certain cases. –
Where 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 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 (2) of Section 11A. shall also be liable to pay a penalty equal to the duty so determined:
Provided that where such duty as determined under Sub-section (2) of Section 11A and the interest payable thereon under Section 11AB is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section be twenty-five per cent of the duty so determined:
Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has not been paid within the period of thirty days referred to in that proviso:
Provided also that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty, as reduced or increased, as the case may be, shall be taken into account:
Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty-five per cent of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect.
Explanation. – For the removal of doubts, it is hereby declared that-
(1) the provisions of this section shall also apply to cases in which the order determining the duty under Sub-section (2) of Section 11A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;
(2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.
5. Learned Counsel for the Revenue points out that the statute does not provide for any discretion in the matter of quantum of penalty and the Tribunal erred in not imposing penalty equal to the duty determined. Learned Counsel for the Revenue relied upon following decisions:
(i) Zunjarrao Bhikaji Nagarkar v. Union of India .
(ii) Sony India Limited v. Commissioner of Central Excise, Delhi .
6. In Zunjarrao’s case (supra), proceedings were initiated against the petitioner for not proceeding against an assessee with a view to favour him. The petitioner had taken the plea that levy of penalty was not mandatory. In para 32, it was held that once situation warranted levy of penalty, there was no discretion in the matter. In Sony India Limited’s case (supra), penalty under Section 11AC equivalent to the duty was upheld (Para 7 of the judgment).
7. Learned Counsel for the assessee, however, submits that penalty cannot be imposed mechanically. The same could be imposed only if there was requisite mens rea and the words “shall also be liable to pay penalty equal to the duty” should be read as laying down maximum penalty and not minimum. Learned Counsel for the assessee relied upon following judgments:
(i) State of Madhya Pradesh v. Bharat Heavy Electricals .
(ii) Ambuja Synthetics Mills v. Union of India 2004 (175) E.L.T. 85 (Guj.)
(iii) Navrang Dyeing & Printing Mills v. Union of India 2005 (192) E.L.T. 41 (Guj.).
8. Concept of “penalty” has been considered by the Apex Court in several decisions. In Hindustan Steel Ltd. v. State of Orissa , was held that penalty could not be imposed merely on account of failure to comply with a procedural provision. Principle of proportionality is well known. If there is discretion, authority is bound to take into account aggravating or mitigating circumstances and exercise discretion laid down under the law judicially. It is also true that if a provision is made for imposing penalty mechanically, the same may give rise to the question whether such a provision violates Articles 14, 19(1)(g) or 21 of the Constitution of India.
9. In Bharat Heavy Electricals’s case (supra), question before the Hon’ble Supreme Court was about the provisions of penalty in Madhya Pradesh Entry Tax law. In para 12, it was observed that there was a provision for ten times the amount of entry tax but question whether this would be confiscatory, is not gone into in view of the stand taken on behalf of the State that the said provision laid down maximum limit and not fixed amount of penalty.
10. In Ambuja Synthetics’ case (supra), the question was of interpretation of Rule 96ZQ(5) of the Central Excise Rules, 1944, which provided for payment of penalty equal to the amount of duty or Rs. 5,000/- whichever greater, in addition to interest at the rate of 36% per annum. It was held in para 9 that liability to pay penalty would be only where there was intention to evade and that penalty was only maximum amount which could be levied and in the facts and circumstances of each case, there was discretion to levy lesser amount. Decision in Navrang Dyeing’s case (supra) merely follows Ambuja Synthetics’ case (supra).
11. Judgments relied upon by the counsel for the parties are not directly relevant for deciding the question whether there was element of discretion in the quantum of penalty where circumstances warrant imposition of penalty and statute lays down the extent of liability. However, the principles for deciding the issue are well settled.
12. While penalty is liable to be imposed only if there is an element of mens rea i.e. intention to evade tax, quantum of penalty depends on a statutory provision.
13. In Maneki Gandhi v. Union of India , it was held that mere prescribing a procedure for depriving life or liberty of a person did not meet the requirement of Article 21, as such procedure has to be fair, just and reasonable. By process of interpretation, “due process” clause has come to be incorporated in Article 21 of the Constitution.
14. It was held in Sunil Batra v. Delhi Administration :
For what is punitively outrageous, scandalizingly unusual or cruel and rehabilitatively counter-productive, is unarguably unreasonable and arbitrary and is shot down by Articles 14 and 19 and if inflicted with procedural unfairness falls foul of Article 21.
Desai, J, observed in the same case that:
The word ‘law’ in the expression ‘procedure established by law in Article 21 has been interpreted to mean in Maneka Gandhi’s case that the law must be right, just and fair and not arbitrary, fanciful or oppressive. Otherwise it would be no procedure at all and the requirement of Article 21 would not be satisfied. If it is arbitrary, it would be violative of Article 14.
15. In Mithu v. State of Punjab , it was observed that last word on the question of just and fairness does not rest with the legislature and judicial review of legislation in the light of content of Article 21 was permissible to see whether same sentence was laid down or whether a fanciful procedure was laid down. Though in this case, validity of the provision has not been challenged, even for interpretation, principles of constitutionality have to be kept in mind. Legislature cannot always control action of the court or Tribunal in deciding on the question of punishment but having regard to a situation, legislature can lay down minimum sentence or punishment for penalty.
16. It is also well settled that there can be mandatory minimum sentence or penalty laid down by the legislature. In Durand Oilier v. Chief Secretary, Union Territory of Goa , mandatory minimum imprisonment and fine laid down for NDPS offence, was upheld. In Dadu alias Tulsidas etc. v. State of Maharashtra , it was held that subject to mandatory minimum sentence, awarding of sentence was a judicial function (Para 16). In Mithu’s case (supra), the Hon’ble Supreme Court set aside minimum death sentence. Death sentence being different in nature, the said case is not a guidance for other situation.
17. Minimum sentence has also been approved in several other decisions:
(i) Keshabhai Malabhai Vankar v. State of Gujarat 1995 Supp (3) SCC 704.
Minimum sentence under the Essential Commodities Act, 1955 was upheld.
(ii) State of Andhra Pradesh v. S.R. Rangadamappa AIR 1982 SC 1492
Minimum sentence of two years under the Andhra Pradesh Excise Act was upheld.
(iii) Narpal Singh and Ors. v. State of Haryana
Tarlok Singh v. State of Punjab
Santa Singh v. The State of Punjab AIR 1976 SC 2386
It was held that where minimum sentence was prescribed, hearing on the question of sentence was not necessary.
(iv) Hem Chand v. State of Hanjana
Minimum sentence under Section 304B, IPC was upheld.
(v) State of Madhya Pradesh v. Babbu Barkare alias Dalap Singh
State of MP v. Bala alias Balaram
State of MP v. Sheshrao .
It was held that minimum sentence for rape under Section 376 IPC could not be reduced.
(vi) In Madhukar Bhaskarrao Joshi v. State of Maharashtra AIR 2001 SC 147.
It was observed that object of providing minimum sentence is to provide for a deterrent sentence.
(vii) Jagdish Prasad and Anr. v. State of UP AIR 1999 SC 1539
Minimum sentence under PFA Act, 1954 was upheld.
(viii) State of J & K v. Vinay Nanda ,
The above list is not exhaustive.
18. As far as the object of providing for minimum sentence in any statute, reference to a judgment of Hon’ble the Supreme Court in Madhukar Bhaskar-rao joshi’s case (supra) is relevant, wherein it was held as under:
18…Parliament measured the parameters for such condign punishment and in that process wanted to fix a minimum sentence of imprisonment for giving deterrent impact on other public servants who are prone to corrupt deals. That was precisely the reason why the sentence was fixed as 7 years and directed that even if the said period of imprisonment need not be given the sentence shall not be less than the imprisonment for one year. Such a legislative insistence is reflection of Parliament’s resolve to meet corruption cases with very strong hand and to give signals of deterrence as the most pivotal feature of sentencing of corrupt public servants…
(underlining supplied).
19. Having regard to the language of Section 11AC, we find that language of Section 11AC clearly leaves no room for discretion in the quantum of penalty to be imposed.
20. We are of the view that language of the statute is clear. If the situation demands imposition of penalty, the same has to be equal to the amount of duty. There is no doubt that penalty is not to be imposed mechanically. The statute itself lays down that penalty is to be levied only where duty is 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”. Element of mens rea is statutorily insisted upon. Once mens rea is established, the quantum is not left to the discretion of the authority.
Though, such inflexible rule may not be valid in every situation but condition precedent for levy of penalty is statutorily laid down and in the said situations, making a provision for minimum penalty cannot be held to be arbitrary in any manner.
21. We, therefore, do not find any reason to interpret the plain language of the statute to hold that what is laid down is only maximum amount of penalty and not the minimum.
22. In view of above interpretation, we allow this appeal, set aside order of the Tribunal and remand the case to the Tribunal for a fresh decision on the question of levy of penalty. If it is held that levy of penalty is warranted having regard to the requirements of the statute, the Tribunal will be bound to levy penalty equal to the amount of duty. Parties are directed to appear before the Tribunal for further proceedings on October 9, 2006.
23. Appeal stands disposed of accordingly.