# apex Court in Union of India v. Rajasthan Spinning and Weaving Mills

- **Citation:** (2012) 2 ILRA 1003
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2012-07-06
- **Bench:** Ashok Bhushan, Prakash Krishna
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/apex-court-in-union-of-india-v-rajasthan-spinning-and-weaving-mills-42274
- **Pages:** 12

## Headnote

Central Excise Act, 1944-Section-35-GPower of Custom Excise and Service
Tribunal regarding reduction of penaltythan amount of penalty specified under
Section
11
AC-held-liability
to
pay
penalty
equal
to
excise
duty
so
determined-as such is simultaneous and
consequential-hence the provisions of
Section 11 AC being mandatory-either
adjudication authority or tribunal-has no
authority to impose penalty other than
the liability under section 11 AC

Held: Para 14

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.
Case law discussed:
2009 (238) ELT 3; 1998 (99) ELT 33; 1999
(112) E.L.T. 772; 2005 (182) E.L.T. 289; 2008
(231) E.L.T. 3

## Text

_Characters 0–39,914 of 40,434. This is a partial read: ask again with offset=39914 for what follows._

2 All] Commissioner of Customs & Central Excise V. M/S Majestic Auto Ltd.
1003
respondent No.1 to reconsider the grant
exemption in the matter of age limit as
provided under Rule 9 of the U.P.
Factories Welfare Officers Rules, 1955.

20. The writ petition is allowed.
--------
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 06.07.2012

BEFORE
THE HON'BLE ASHOK BHUSHAN, J.
THE HON'BLE PRAKASH KRISHNA, J.

Central Excise Appeal No. - 142 of 2004

Commissioner Of Customs & Central
Excise

 ...Petitioner
Versus
M/S Majestic Auto Ltd ...Respondents

Counsel for the Petitioner:
Sri K.C. Sinha
S.S.C.
Sri A K Nigam
Sri A K Rai
Sri B.K.S. Raghuvanshi

Counsel for the Respondents:
Sri Piyush Agrawal

Central Excise Act, 1944-Section-35-GPower of Custom Excise and Service
Tribunal regarding reduction of penaltythan amount of penalty specified under
Section
11
AC-held-liability
to
pay
penalty
equal
to
excise
duty
so
determined-as such is simultaneous and
consequential-hence the provisions of
Section 11 AC being mandatory-either
adjudication authority or tribunal-has no
authority to impose penalty other than
the liability under section 11 AC

Held: Para 14

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.
Case law discussed:
2009 (238) ELT 3; 1998 (99) ELT 33; 1999
(112) E.L.T. 772; 2005 (182) E.L.T. 289; 2008
(231) E.L.T. 3

(Delivered by Hon'ble Ashok Bhushan, J.)

1. 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."

2. 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
1004 INDIAN LAW REPORTS ALLAHABAD SERIES [2012
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.

3. 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.

4. 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.

5. 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,
2 All] Commissioner of Customs & Central Excise V. M/S Majestic Auto Ltd.
1005
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.

6.

We
have
considered
the
submissions of learned counsel for the
parties and have perused the record.

7. 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 shortlevy 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 misstatement 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 subsection (5) of section 11A, the person who is
liable to pay duty as determined under subsection (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 subsection (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
1006 INDIAN LAW REPORTS ALLAHABAD SERIES [2012
counted from the date of the order of the
appellate authority in respect of such
increased amount." to be tallied

8. 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.

9. 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
2 All] Commissioner of Customs & Central Excise V. M/S Majestic Auto Ltd.
1007
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
1008 INDIAN LAW REPORTS ALLAHABAD SERIES [2012
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"

10. 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
2 All] Commissioner of Customs & Central Excise V. M/S Majestic Auto Ltd.
1009
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 nonsubmission of the statement under subsection [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 subsections [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."
1010 INDIAN LAW REPORTS ALLAHABAD SERIES [2012

11. 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.

12. 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
2 All] Commissioner of Customs & Central Excise V. M/S Majestic Auto Ltd.
1011
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."

13. 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
1012 INDIAN LAW REPORTS ALLAHABAD SERIES [2012
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 nonpayment 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
2 All] Commissioner of Customs & Central Excise V. M/S Majestic Auto Ltd.
1013
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
1014 INDIAN LAW REPORTS ALLAHABAD SERIES [2012
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"

14. 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.

15. 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"

16. The appeal is allowed. Parties
shall bear their own cost.
---------
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 30.07.2012

BEFORE
THE HON'BLE SUDHIR AGARWAL, J.

Civil Misc. Writ Petition No. 24853 of 1989

Brij Nandan Gupta

 ...Petitioner
Versus
III Addl. District Judge, Rampur and
another

 ...Respondents

Counsel for the Petitioner:
Sri A.K. Gupta
Sri B.K. Pandey
Sri B.R.Pandey
Sri K. Ajit

Counsel for the Respondents:
S.C.
Sri J.S.Tomar
Sri Murlidhar
Sri Pradeep Kumar