Fibre Board’s case is a recent judgment which, as has
correctly been argued by Shri Radhakrishnan, learned senior
counsel on behalf of the revenue, clarifies the law in holding
that an omission would amount to a repeal. The converse view
of the law has led to an omitted provision being treated as if it
never existed, as Section 6 of the General Clauses Act would
not then apply to allow the previous operation of the provision
so omitted or anything duly done or suffered thereunder. Nor
may a legal proceeding in respect of any right or liability be
instituted, continued or enforced in respect of rights and
liabilities acquired or incurred under the enactment so omitted.
In the vast majority of cases, this would cause great public
mischief, and the decision of Fibre Board’s case is therefore
clearly delivered by this Court for the public good, being, at the
very least a reasonably possible view. Also, no aspect of the
question at hand has remained unnoticed. For this reason also
we decline to accept Shri Aggarwal’s persuasive plea to
reconsider the judgment in Fibre Board’s case. This being
the case, it is clear that on point one the present appeal would
have to be dismissed as being concluded by the decision in the
Fibre Board’s case.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4280 OF 2007
M/S. SHREE BHAGWATI STEEL
ROLLING MILLS …APPELLANT
VERSUS
COMMISSIONER OF CENTRAL EXCISE
& ANR. …RESPONDENTS
WITH
CIVIL APPEAL NO.4281 OF 2007
Dated;November 24, 2015.
Citation;(2016) 3 SCC 643
2. This batch of appeals raises questions relating to the
demand for interest and penalty under Rules 96ZO, 96 ZP and
96 ZQ of the Central Excise Rules, 1994, which were framed in
order to effectuate the provisions contained in Section 3A of the
Central Excise Act, 1994. Several High Courts have struck
down the said Rules relating to penalty as being ultra vires the
parent provision and violative of Articles 14 and 19(1)(g) of the
Constitution. Most of the appeals in this batch are, therefore,
by the Union of India. However, before dealing with the said
appeals, it is necessary to first segregate Civil Appeal No.4280
of 2007 which raises a slightly different question from the
questions raised in the other appeals and decide it first.
3. The question which arises for decision in the said appeal
is the demand, by means of a letter dated 19.8.2005, for
payment of interest for delayed payment of central excise duty
under Section 3A of the Central Excise Act, 1944.
4. The case of the appellant is that it took a rolling mill on
lease for the period from 1997 to 2000 and manufactured
rerolled non-alloyed steel products. On 1.9.1997 the
compounded levy scheme was introduced by way of insertion
of Section 3A of the Central Excise Act. The appellant opted
for the aforesaid scheme under Rule 96ZP of the Central
Excise Rules. When the lease expired, the appellant
surrendered its registration certificate on 1.6.2000. As stated
hereinabove, on 19.8.2005 the impugned notice was issued to
the appellant demanding interest for delayed payment of duty
for the period 1997 to 2000.
5. The High Court framed two questions which arose for its
consideration: (1) whether “omission” of the compounded levy
scheme in 2001 wipes out the liability of the assessee for the
period during which the scheme was in operation, and (2)
whether the letter of demand of interest for delayed payment
was liable to be set aside on the ground of delay.
6. The High Court found, after distinguishing some of the
judgments of this Court, and after relying upon Section 38A of
the Central Excise Act, which was added vide Section 131 of
the Finance Act, 2001, that on omission of Section 3A, the
liability of the assessee was not wiped out.
7. Shri Ajay Aggarwal, learned counsel who appeared on
behalf of the appellant fairly submitted that a recent judgment
delivered by this Bench, namely, M/s Fibre Boards (P) Ltd.,
Bangalore v. Commissioner of Income Tax, Bangalore,
[2015] 376 ITR 596 (SC), would cover the matter before us
being directly against the appellant’s case. However, he
submitted that for various reasons this judgment requires a
relook and ought to be referred to a larger Bench of three
Judges. Shri Aggarwal argued the matter with great ability and
we listened to him with considerable interest.
8. First, it may be stated that the judgment of this Court in
the Fibre Board’s case has taken the view that an “omission”
would amount to a “repeal”, after referring to several authorities
of this Court, G.P. Singh’s Principles of Statutory Interpretation,
Section 6A of the General Clauses Act, 1897, and a passage in
Halsbury’s Laws of England. Ultimately, this Court arrived at
the conclusion that an “omission” would amount to a “repeal” for
the purpose of Section 24 of the General Clauses Act. Since
the same expression, namely, “repeal” is used both in Section 6
and Section 24 of the General Clauses Act, the construction of
the said expression in both sections would, therefore, include
within it “omissions” made by the legislature.
9. Shri Aggarwal, however, argued that there is a
fundamental distinction between a “repeal” and an “omission” in
that in the case of a “repeal” the statute is obliterated from the
very beginning whereas in the case of an “omission” what gets
omitted is only from the date of “omission” and not before. This
being the case, it is clear that things already done in the case of
an “omission” would be saved. However, a “repeal” without a
savings clause like Section 6 of the General Clauses Act would
not so save things already done under the repealed statute. He
further argued that Section 6A which was relied upon by the
Bench in the Fibre Board’s case did not state that an “omission”
would be included within the expression “repeal”, but that if
Section 6A were carefully read, an “omission” would only be
included in an “amendment” which, under the Section, can be
by way of omission, insertion or substitution. Therefore, it is
fallacious to state that Section 6A would lead to the conclusion
that “omissions” are included in “repeals”. He further argued
that in any event, the true ratio decidendi of the Constitution
Bench decision in Rayala Corporation (P) Ltd. & Ors. v.
Director of Enforcement, New Delhi, 1969 (2) SCC 412, is
that an “omission” cannot amount to a “repeal” inasmuch as the
first reason given for distinguishing the Madhya Pradesh High
Court’s judgment in that case was that Section 6 cannot apply
to the omission of a rule because an “omission” is not a
“repeal”. He further argued that as the Madhya Pradesh High
Court’s decision was put forward by the respondent in that case
in support of their argument, the Constitution Bench’s dealing
with the said decision in order to overcome it would necessarily
be the ratio decidendi of the said decision, and being a
Constitution Bench decision, would be binding upon this Bench.
He further referred to Section 31 of the Prevention of Corruption
Act, 1988, which, in his opinion, makes it clear that Parliament
itself has understood that a repeal under Section 6 of the
General Clauses Act would not apply to omissions. He has
further argued that it may be true that the expression “repeal” is
normally used when an entire statute is done away with, as
opposed to an “omission” which is applied only when part of the
statute is deleted, but said that this is not invariably the case,
and referred to Section 1 of the Indian Contract Act in which
enactments mentioned in the schedule are repealed not in their
entirety but only to the extent provided and, therefore, argued
that the expression “repeals” will apply also to a part of an
enactment as opposed to the enactment as a whole.
10. Shri Radhakrishnan, learned senior counsel appearing on
behalf of the revenue supported the judgment of this Court in
the Fibre Board’s case and said that recent judgments
delivered which have clarified the law ought not to be disturbed
in the larger public interest.
11. Since Shri Aggarwal has made detailed submissions on
why according to him the judgment in the Fibre Board’s case is
not correctly decided, we propose to deal with each of those
submissions in some detail.
12. First and foremost, it is important to refer to the definition
of “enactment” contained in Section 3(19) of the General
Clauses Act. The said definition clause states that “enactment”
shall mean the following:-
“enactment" shall include a Regulation (as
hereinafter defined) and any Regulation of the
Bengal, Madras or Bombay Code, and shall also
include any provision contained in any Act or in any
such Regulation as aforesaid.”
13. From this it is clear that when Section 6 speaks of the
repeal of any enactment, it refers not merely to the enactment
as a whole but also to any provision contained in any Act.
Thus, it is clear that if a part of a statute is deleted, Section 6
would nonetheless apply. Secondly, it is clear, as has been
stated by referring to a passage in Halsbury’s Laws of England
in the Fibre Board’s judgment, that the expression “omission” is
nothing but a particular form of words evincing an intention to
abrogate an enactment or portion thereof. This is made further
clear by the Legal Thesaurus (Deluxe Edition) by William C
Burton, 1979 Edition. The expression “delete” is defined by the
Thesaurus as follows:
“Delete: - Blot out, cancel, censor, cross off, cross
out, cut, cut out, dele, discard, do away with, drop,
edit out, efface, elide, eliminate, eradicate, erase,
excise, expel, expunge, extirpate, get rid of, leave
out, modify by excisions, obliterate, omit, remove,
rub out, rule out, scratch out, strike off, take out,
weed wipe out.”
Likewise the expression “omit” is also defined by this Thesaurus
as follows:-
“Omit:- Abstain from inserting, bypass, cast aside,
count out, cut out, delete, discard, dodge, drop
exclude, exclude, fail to do, fail to include, fail to
insert, fail to mention, leave out, leave undone, let
go, let pass, let slip, miss, neglect, omittere, pass
over, praetermittere, skip, slight, transire.”
And the expression “repeal” is defined as follows:-
“Repeal:- Abolish, abrogare, abrogate, annul, avoid,
cancel, countermand, declare null and void, delete,
eliminate, formally withdraw, invalidate, make void,
negate, nullify, obliterate, officially withdraw,
override, overrule, quash, recall, render invalid,
rescind, rescindere, retract, reverse, revoke, set
aside, vacate, void, withdraw.”
14. On a conjoint reading of the three expressions “delete”,
“omit”, and “repeal”, it becomes clear that “delete” and “omit”
are used interchangeably, so that when the expression “repeal”
refers to “delete” it would necessarily take within its ken an
omission as well. This being the case, we do not find any
substance in the argument that a “repeal” amounts to an
obliteration from the very beginning, whereas an “omission” is
only in futuro. If the expression “delete” would amount to a
“repeal”, which the appellant’s counsel does not deny, it is clear
that a conjoint reading of Halsbury’s Laws of England and the
Legal Thesaurus cited hereinabove both lead to the same
result, namely that an “omission” being tantamount to a
“deletion” is a form of repeal.
15. Learned counsel’s second argument that Section 6A
when it speaks of an “omission” only speaks of an
“amendment” which omits and, therefore does not refer to a
repeal is equally fallacious. In Bhagat Ram Sharma v. Union
of India, 1988 Supp SCC 30, this Court held that there is no
real distinction between a repeal and an amendment and that
“amendment” is in fact a wider term which includes deletion of
a provision in an existing statute. In the said judgment, this
Court held:-
“17. It is a matter of legislative practice to provide
while enacting an amending law, that an existing
provision shall be deleted and a new provision
substituted. Such deletion has the effect of repeal of
the existing provision. Such a law may also provide
for the introduction of a new provision. There is no
real distinction between 'repeal' and an
'amendment'. In Sutherland's Statutory
Construction, 3rd Edn., Vol. 1 at p. 477, the learned
author makes the following statement of law:
The distinction between repeal and amendment as
these terms are used by the Courts is arbitrary.
Naturally the use of these terms by the Court is
based largely on how the Legislature have
developed and applied these terms in labelling their
enactments. When a section is being added to an
Act or a provision added to a section, the
Legislatures commonly entitled the Act as an
amendment.... When a provision is withdrawn from
a section, the Legislatures call the Act an
amendment particularly when a provision is added
to replace the one withdrawn. However, when an
entire Act or section is abrogated and no new
section is added to replace it, Legislatures label the
Act accomplishing this result a repeal. Thus as used
by the Legislatures, amendment and repeal may
differ in kind - addition as opposed to withdrawal or
only in degree -abrogation of part of a section as
opposed to abrogation of a whole section or Act; or
more commonly, in both kind and degree - addition
of a provision to a section to replace a provision
being abrogated as opposed by abrogation of a
whole section of an Act. This arbitrary distinction
has been followed by the Courts, and they have
developed separate rules of construction for each.
However, they have recognised that frequently an
Act purporting to be an amendment has the same
qualitative effect as a repeal - the abrogation of an
existing statutory provision -and have therefore
applied the term "implied repeal' and the rules of
construction applicable to repeals to such
amendments.
18. Amendment is in fact, a wider term and it
includes abrogation or deletion of a provision in an
existing statute. If the amendment of an existing law
is small, the Act professes to amend; if it is
extensive, it repeals a law and re-enacts it. An
amendment of substantive law is not retrospective
unless expressly laid down or by necessary'
implication inferred.” (at para 17 & 18)
16. It is clear, therefore, that when this Court referred to
Section 6A in Fibre Board’s case and held that Section 6A
shows that a repeal can be by way of an express omission,
obviously what was meant was that an amendment which
repealed a provision could do so by way of an express
omission. This being the case, it is clear that Section 6A
undisputedly leads to the conclusion that a repeal would include
a repeal by way of an express omission.
17. Learned counsel then argued that while distinguishing the
Madhya Pradesh High Court’s judgment in Rayala Corporation,
a Constitution Bench of this Court expressly held as the first
reason that Section 6 applies only to repeals and not to
omissions. The Fibre Board’s judgment has clearly held as
follows:
“First and foremost, it will be noticed that two
reasons were given in Rayala Corporation (P) Ltd.
for distinguishing the Madhya Pradesh High Court
judgment. Ordinarily, both reasons would form the
ratio decidendi for the said decision and both
reasons would be binding upon us. But we find that
once it is held that Section 6 of the General Clauses
Act would itself not apply to a rule which is
subordinate legislation as it applies only to a Central
Act or Regulation, it would be wholly unnecessary to
state that on a construction of the word “repeal” in
Section 6 of the General Clauses Act, “omissions”
made by the legislature would not be included.
Assume, on the other hand, that the Constitution
Bench had given two reasons for the nonapplicability
of Section 6 of the General Clauses
Act. In such a situation, obviously both reasons
would be ratio decidendi and would be binding upon
a subsequent bench. However, once it is found that
Section 6 itself would not apply, it would be wholly
superfluous to further state that on an interpretation
of the word “repeal”, an “omission” would not be
included. We are, therefore, of the view that the
second so-called ratio of the Constitution Bench in
Rayala Corporation (P) Ltd. cannot be said to be a
ratio decidendi at all and is really in the nature of
obiter dicta.” (at para 27)
18. Merely because the Constitution Bench referred to a
repeal not amounting to an omission as the first reason given
for distinguishing the Madhya Pradesh High Court’s judgment
would not undo the effect of paragraph 27 of Fibre Board’s
case which, as has already been stated, clearly makes the
distinction between Section 6 not applying at all and Section 6
being construed in a particular manner. Obviously, if the
Section were not to apply at all, any construction of the Section
would necessarily be in the nature of obiter dicta.
19. We also find that Section 6 could not possibly apply to the
facts in Rayala Corporation’s case for yet another reason.
Clause 2 of the amendment rules which was referred to in
paragraph 14 of the judgment in Rayala Corporation reads as
follows:-
“In the Defence of India Rules, 1962, rule 132A
(relating to prohibition of dealings in foreign
exchange) shall be omitted except as respects
things done or omitted to be done under that rule.”
20. A cursory reading of clause 2 shows that after omitting
Rule 132A of the Defence of India Rules, 1962, the provision
contains its own saving clause. This being the case, Section 6
can in any case have no application as Section 6 only applies
to a Central Act or regulation “unless a different intention
appears”. A different intention clearly appears on a reading of
clause 2 as only a very limited savings clause is incorporated
therein. In fact, this aspect is noticed by the Constitution Bench
in paragraph 18 of its judgment, in which the Constitution
Bench states:-
“As we have indicated earlier, the notification of the
Ministry of Home Affairs omitting Rule 132-A of the
D.I.Rs. did not make any such provision similar to
that contained in Section 6 of the General Clauses
Act.”
21. It was then urged before us that Section 31 of the
Prevention of Corruption Act, 1988 would also lead to the
conclusion that Parliament itself is cognizant of the fact that an
omission cannot amount to a repeal. Section 31 of the
Prevention of Corruption Act, 1988, states as follows:-
“Section 31 - Omission of certain sections of Act 45
of 1860
Sections 161 to 165A (both inclusive) of the Indian
Penal Code, 1860 (45 of 1860) shall be omitted,
and section 6 of the General Clauses Act, 1897 (10
of 1897), shall apply to such omission as if the said
sections had been repealed by a Central Act.”
22. It is settled law that Parliament is presumed to know the
law when it enacts a particular piece of legislation. The
Prevention of Corruption Act was passed in the year 1988, that
is long after 1969 when the Constitution Bench decision in
Rayala Corporation had been delivered. It is, therefore,
presumed that Parliament enacted Section 31 knowing that the
decision in Rayala Corporation had stated that an omission
would not amount to a repeal and it is for this reason that
Section 31 was enacted. This again does not take us further as
this statement of the law in Rayala Corporation is no longer the
law declared by the Supreme Court after the decision in the
Fibre Board’s case. This reason therefore again cannot avail
the appellant.
23. The reference to the savings provision in Section 1 of the
Indian Contract Act again does not take us very much further as
the expression “repeal” as has been pointed out above can be
of part of an enactment also. This being the case, when the
legislature uses the word “omit” it usually does so when it
wishes to delete a particular section as opposed to deleting an
entire Act. As has been noticed both in Fibre Board’s case and
19Page 20
hereinabove, these are all expressions which only go to form
and not to substance. Even assuming for the sake of argument
that we were inclined to agree with Shri Aggarwal, given the
force of his inexorable logic, this Court has laid down the
parameters of when it would be expedient to have a relook at a
particular decision in the case of Keshav Mills Co. Ltd. v. CIT,
Bombay North, 1965 (2) SCR 908, as follows.-
“In dealing with the question as to whether the
earlier decisions of this Court in the New Jehangir
Mills [1959]37ITR11(SC) case and the Petlad Co.
Ltd. [1963] S.C.R. 871 case should be
reconsidered and revised by us, we ought to be
clear as to the approach which should be adopted in
such cases. Mr. Palkhivala has not disputed the fact
that, in proper case, this Court has inherent
jurisdiction to reconsider and revise its earlier
decisions, and so, the abstract question as to
whether such a power vests in this Court or not
need not detain us. In exercising this inherent
power, however, this would naturally like to impose
certain reasonable limitations and would be
reluctant to entertain pleas for the reconsideration
and revision of its earlier decisions, unless it is
satisfied that there are compelling and substantial
reasons to do so. It general judicial experience that
in matters of law involving question of constructing
statutory or constitutional provisions, two views are
often reasonably possible and when judicial
approach has to make a choice between the two
reasonably possible views, the process of decisionmaking
is often very difficult and delicate. When this
Court hears appeals against decisions of the High
Courts and is required to consider the propriety or
correctness of the view taken by the High Courts on
any point of law, it would be open to this Court to
hold that though the view taken by the High Court is
reasonably possible, the alternative view which is
also reasonably possible is better and should be
preferred. In such a case, the choice is between the
view taken by the High Court whose judgment is
under appeal, and the alternative view which
appears to this Court to be more reasonable; and in
accepting it own view in preference to that of the
High Court, this Court would be discharging its duty
as Court of Appeal. But different considerations
must inevitably arise where a previous decision of
this Court has taken a particular view as to the
construction of a statutory provision as, for instance,
section 66(4) of the Act. When it is urged that the
view already taken by this Court should be reviewed
and revised, it may not necessarily be an adequate
reason for such review and revision to hold that
though the earlier view is a reasonably possible
view, the alternative view which is pressed on the
subsequent occasion is more reasonable. In
reviewing and revising its earlier decision, this Court
should ask itself whether in interests of the public
good or for any other valid and compulsive reasons,
it is necessary that the earlier decision should be
revised. When this Court decides questions of law,
its decisions are, under Article 141, binding on all
courts within the territory of India, and so, it must be
the constant endeavour and concern of this Court to
introduce and maintain an element of certainty and
continuity in the interpretation of law in the country.
Frequent exercise by this Court of its power to
review its earlier decisions on the ground that the
view pressed before it later appears to the Court to
be more reasonable, may incidentally tend to make
law uncertain and introduce confusion which must
be consistently avoided. That is not to say that if on
a subsequent occasion, the Court is satisfied that its
21Page 22
earlier decision was clearly erroneous, it should
hesitate to correct the error; but before a previous
decision is pronounced to be plainly erroneous, the
Court must satisfied with a fair amount of unanimity
amongst its members that a revision of the said
view is fully justified. It is not possible or desirable,
and in any case it would be inexpedient to lay down
any principles which should govern the approach of
the Court in dealing with the question of reviewing
and revising its earlier decisions. It would always
depend upon several relevant considerations:- What
is the nature of the infirmity or error on which a plea
for review and revision of the earlier view is based?
On the earlier occasion, did some patent aspects of
the question remain unnoticed, or was the attention
of the Court not drawn to any relevant and material
statutory provision, or was any previous decision of
this Court bearing on the point not noticed? Is the
Court hearing such plea fairly unanimous that there
is such an error in the earlier view? What would be
the impact of the error on the general administration
of law or on public good ? Has the earlier decision
been followed on subsequent occasions either by
this Court or by the High Courts ? And, would the
reversal of the earlier decision lead to public
inconvenience, hardship or mischief ? These and
other relevant considerations must be carefully
borne in mind whenever this Court is called upon to
exercise its jurisdiction to review and review and
revise its earlier decisions.” (at page 921-922)
24. Fibre Board’s case is a recent judgment which, as has
correctly been argued by Shri Radhakrishnan, learned senior
counsel on behalf of the revenue, clarifies the law in holding
that an omission would amount to a repeal. The converse view
of the law has led to an omitted provision being treated as if it
never existed, as Section 6 of the General Clauses Act would
not then apply to allow the previous operation of the provision
so omitted or anything duly done or suffered thereunder. Nor
may a legal proceeding in respect of any right or liability be
instituted, continued or enforced in respect of rights and
liabilities acquired or incurred under the enactment so omitted.
In the vast majority of cases, this would cause great public
mischief, and the decision of Fibre Board’s case is therefore
clearly delivered by this Court for the public good, being, at the
very least a reasonably possible view. Also, no aspect of the
question at hand has remained unnoticed. For this reason also
we decline to accept Shri Aggarwal’s persuasive plea to
reconsider the judgment in Fibre Board’s case. This being
the case, it is clear that on point one the present appeal would
have to be dismissed as being concluded by the decision in the
Fibre Board’s case.
25. Even on the point of limitation, we find that the High Court
noticed that the assessee undertook to pay the amount with
interest upto 31.3.2003, on which date a last part payment was
23Page 24
made. As the demand was raised by the Department on
19.8.2005 i.e. within a period of three years from 31.3.2003, it is
clear that the said recovery notice would not be beyond the
time limit.
26. However, Shri Aggarwal has also argued that in this
appeal as well as in Civil Appeal No.4281 and 4282 of 2007,
the Rule providing for payment of interest would itself be ultra
vires inasmuch as Section 3A of the Act does not itself provide
for the payment of interest. He argued that despite the fact that
this point was not raised before any of the authorities below he
ought to be allowed to raise it for the first time in this Court not
only as it is a pure question of law but also because, according
to him, this Court has held that rules which are ultra vires ought
to be ignored by the courts even if there is no substantive
challenge to them.
27. Shri Radhakrishnan, learned senior advocate appearing
for the revenue, strongly contradicts this position and has
vehemently argued that since this issue was never raised
before the authorities below, this Court should not allow the
appellant to raise it at this belated stage. He further submitted
that in any case it would not be necessary for the statute to
provide for interest and it is good enough that subordinate
legislation in the nature of a rule could do so. Inasmuch as
these cases relate to interest and penalty leviable under certain
provisions of the Central Excise Rules, it may be necessary to
set out the said provisions. They read as follows:
“RULE 96ZO. Procedure to be followed by the
manufacturer of ingots and billets.
(3)……..
Provided also that where a manufacturer fails to pay
the whole of the amount payable for any month by
the 15th day or the last day of such month, as the
case may be, he shall be liable to,-
(i) Pay the outstanding amount of duty along with
interest thereon at the rate of eighteen per cent. per
annum, calculated for the period from the 16th day of
such month or the 1st day of next month, as the
case may be, till the date of actual payment of the
outstanding amount; and
(ii) A penalty equal to such outstanding amount of
duty or five thousand rupees, whichever is greater.”
RULE 96ZP. Procedure to be followed by the
manufacturer of hot rolled products.
(3)…….
Provided also that where a manufacturer fails to pay
the whole of amount of duty payable for any month
by the 10th day of such month, he shall be liable to
pay, -
(i) The outstanding amount of duty along with
interest thereon at the rate of eighteen per cent. per
annum calculated for the period from the 11th day of
such month till the date of actual payment of the
outstanding amount; and
(ii) A penalty equal to the amount of duty
outstanding from him at the end of such month or
five thousand rupees, whichever is greater.
Rule 96ZQ Procedure to be followed by the
independent processor of textile fabrics.
(5) If an independent processor fails to pay the
amount of duty or any part thereof by the date
specified in sub-rule (3), he shall be liable to,-
(i) Pay the outstanding amount of duty along with
interest at the rate of thirty-six per cent per annum
calculated for the outstanding period on the
outstanding amount; and
(ii) A penalty equal to an amount of duty
outstanding from him or rupees five thousand,
whichever is greater.”
28. Shri Aggarwal in order to buttress his submission that he
ought to be allowed to raise a pure question of law going to the
very jurisdiction to levy interest cited before us the judgment in
Bhartidasan University and Another v. All-India Council for
Technical Education, 2001 (8) SCC 676, and in particular
paragraph 14 thereof which reads as follow:-
“The fact that the Regulations may have the force of
law or when made have to be laid down before the
legislature concerned do not confer any more
sanctity or immunity as though they are statutory
provisions themselves. Consequently, when the
power to make Regulations are confined to certain
limits and made to flow in a well defined canal within
stipulated banks, those actually made or shown and
found to be not made within its confines but outside
them, the Courts are bound to ignore them when
the question of their enforcement arise and the
mere fact that there was no specific relief sought for
to strike down or declare them ultra vires,
particularly when the party in sufferance is a
Respondent to the lis or proceedings cannot confer
any further sanctity or authority and validity which it
is shown and found to obviously and patently lack. It
would, therefore, be a myth to state that
Regulations made under Section 23 of the Act have
"Constitutional" and legal status, even unmindful of
the fact that anyone or more of them are found to be
not consistent with specific provisions of the Act
itself. Thus, the Regulations in question, which the
AICTE could not have made so as to bind
universities/UGC within the confines of the powers
conferred upon it, cannot be enforced against or
bind an University in the matter of any necessity to
seek prior approval to commence a new department
or course and programme in technical education in
any university or any of its departments and
constituent institutions.”
29. It would be seen that Shri Aggarwal is on firm ground
because this Court has specifically stated that rules or
regulations which are in the nature of subordinate legislation
which are ultra vires are bound to be ignored by the courts
when the question of their enforcement arises and the mere
fact that there is no specific relief sought for to strike down or
declare them ultra vires would not stand in the court’s way of
not enforcing them. We also feel that since this is a question of
the very jurisdiction to levy interest and is otherwise covered by
a Constitution Bench decision of this Court, it would be a
travesty of justice if we would not to allow Shri Aggarwal to
make this submission.
30. On merits, the matter is no longer res integra. A
Constitution Bench decision of this Court in VVS Sugars v.
Government of A.P., 1999 (4) SCC 192, has held, following
two earlier judgments of this Court, as follows:-
“This Court in India Carbon Ltd. v. State of
Assam [(1997) 6 SCC 479] has held, after analysing
the Constitution Bench judgment in J.K. Synthetics
Ltd. v. CTO [(1994) 4 SCC 276] that interest can be
levied and charged on delayed payment of tax only
if the statute that levies and charges the tax makes
a substantive provision in this behalf. There being
no substantive provision in the Act for the levy of
interest on arrears of tax that applied to purchases
of sugarcane made subsequent to the date of
commencement of the amending Act, no interest
thereon could be so levied, based on the application
of the said Rule 45 or otherwise.”
28Page 29
31. Applying the Constitution Bench decision stated above, it
will have to be declared that since Section 3A which provides
for a separate scheme for availing facilities under a compound
levy scheme does not itself provide for the levying of interest,
Rules 96 ZO, 96 ZP and 96 ZQ cannot do so and therefore on
this ground the appellant in Shree Bhagwati Steel Rolling Mills
has to succeed. On this ground alone therefore the impugned
judgment is set aside. That none of the other provisions of the
Central Excise Act can come to the aid of the Revenue in cases
like these has been laid down by this Court in Hans Steel
Rolling Mill v. CCE, (2011) 3 SCC 748 as follows:
“13. On going through the records it is clearly
established that the appellants are availing the
facilities under the compound levy scheme, which
they themselves opted for and filed declarations
furnishing details about the annual capacity of
production and duty payable on such capacity of
production. It has to be taken into consideration that
the compounded levy scheme for collection of duty
based on annual capacity of production under
Section 3 of the Act and the 1997 Rules is a
separate scheme from the normal scheme for
collection of Central excise duty on goods
manufactured in the country. Under the same, Rule
96-ZP of the Central Excise Rules stipulate the
method of payment and Rule 96-ZP contains
detailed provision regarding time and manner of
payment and it also contains provisions relating to
29Page 30
payment of interest and penalty in event of delay in
payment or non-payment of dues. Thus, this is a
comprehensive scheme in itself and general
provisions in the Act and the Rules are excluded.”
(at page 751)
32. We now come to the other appeals which concern
themselves with penalties that are leviable under Rules 96 ZO,
96 ZP and 96 ZQ. Since the lead judgment is a detailed
judgment by a Division Bench of the Gujarat High Court
reported in Krishna Processors v. Union of India, 2012 (280)
ELT 186 (Guj.) and followed by other High Courts, we will refer
only to this decision.
33. On the facts before the Gujarat High Court, there were
three civil applications each of which challenged the
constitutional validity of the aforesaid rules insofar as they
prescribed the imposition of a penalty equal to the amount of
duty outstanding without any discretion to reduce the same
depending upon the time taken to deposit the duty. The
Gujarat High Court struck down the aforesaid Rules on the
basis that not only were they ultra vires the Act but they were
arbitrary and unreasonable and therefore violative of Articles 14
and 19(1)(g) of the Constitution.
34. Shri Radhakrishnan, learned senior advocate appearing
on behalf of the revenue found it extremely difficult to argue that
the aforesaid judgment was wrong. He therefore asked us to
limit the effect of the judgment when it further held that after
omission of the aforesaid Rules with effect from 1.3.2001 no
proceedings could have been initiated thereunder. In this
submission he is correct for the simple reason that the Gujarat
High Court followed Rayala Corporation in holding that
“omissions” would not amount to “repeals”, which this Court
has now clarified is not the correct legal position.
35. However, insofar the reasoning of the High Court is
concerned on the aspects stated hereinabove, we find that on
all three counts it is unexceptionable. First and foremost, a
delay of even one day would straightaway, without more, attract
a penalty of an equivalent amount of duty, which may be in
crores of rupees. It is clear that as has been held by this Court,
penalty imposable under the aforesaid three Rules is inflexible
and mandatory in nature. The High Court is, therefore, correct
in saying that an assessee who pays the delayed amount of
duty after 100 days is to be on the same footing as an
assessee who pays the duty only after one day’s delay and that
therefore such rule treats unequals as equals and would,
therefore, violate Article 14 of the Constitution of India. It is also
correct in saying that there may be circumstances of force
majeure which may prevent a bonafide assessee from paying
the duty in time, and on certain given factual circumstances,
despite there being no fault on the part of the assessee in
making the deposit of duty in time, a mandatory penalty of an
equivalent amount of duty would be compulsorily leviable and
recoverable from such assessee. This would be extremely
arbitrary and violative of Article 14 for this reason as well.
Further, we agree with the High Court in stating that this would
also be violative of the appellant’s fundamental rights under
Article 19(1)(g) and would not be saved by Article 19(6), being
an unreasonable restriction on the right to carry on trade or
business. Clearly the levy of penalty in these cases of a
mandatory nature for even one day’s delay, which may be
beyond the control of the assessee, would be arbitrary and
excessive. In such circumstances, this Court has held in Md.
Faruk v. State of M.P., 1970(1) SCR 156:
32Page 33
“The Court must in considering the validity of the
impugned law imposing a prohibition on the carrying
on of a business or profession, attempt an
evaluation of its direct and immediate impact upon
the fundamental rights of the citizens affected
thereby and the larger public interest sought to be
ensured in the light of the object sought to be
achieved, the necessity to restrict the citizen's
freedom, the inherent pernicious nature of the act
prohibited or its capacity or tendency to be harmful
to the general public, the possibility of achieving the
object by imposing a less drastic restraint, and in
the absence of exceptional situations such as the
prevalence of a state of emergency-national or
local-or the necessity to maintain essential supplies,
or the necessity to stop activities inherently
dangerous, the existence of a machinery to satisfy
the administrative authority that no case for
imposing the restriction is made out or that a less
drastic restriction may ensure the object intended to
be achieved.” (at page 161)
36. The direct and immediate impact upon the fundamental
right of the citizen is that he is exposed to a huge liability by
way of penalty for reasons which may in given circumstances
be beyond his control and/or for delay which may be minimal.
The possibility of achieving the object of deterrence in such
cases can be achieved by imposing a less drastic restraint. In
point of fact when we contrast these provisions with Section 37
of the Act, it becomes clear how arbitrary and excessive they
are.
37. Section 37(3) and 37(4) of the Central Excise Act reads
as follows:-
“Section 37. Power of Central Government to make
rules. —
(3) In making rules under this section, the Central
Government may provide that any person
committing a breach of any rule shall, where no
other penalty is provided by this Act, be liable to a
penalty not exceeding five thousand rupees.
(4) Notwithstanding anything contained in subsection
(3), and without prejudice to the provisions
of section 9, in making rules under this section, the
Central Government may provide that if any
anufacturer, producer or licensee of a warehouse
—
(a) removes any excisable goods in contravention of
the provisions of any such rule, or
(b) does not account for all such goods
manufactured, produced or stored by him, or
(c) engages in the manufacture, production or
storage of such goods without having applied for the
registration required under section 6, or
(d) contravenes the provisions of any such rule with
intent to evade payment of duty,
then, all such goods shall be liable to confiscation
and the manufacturer, producer or licensee shall be
liable to a penalty not exceeding the duty leviable
on such goods or ten thousand rupees, whichever is
greater;”
38. Under Section 37(3), the statute itself provides in all
cases where no other penalty is provided by the Act that a
34Page 35
penalty not exceeding Rs.5,000/- alone can be levied. SubSection(4)
is even more telling. Even in cases where there is a
clandestine removal of excisable goods, and cases where the
assessee intends to evade payment of duty, the assessee is
liable to a penalty not exceeding the duty leviable on such
goods or Rs.10,000/- whichever is greater. It will be noticed
that the Act is very circumspect in laying down penalty
provisions. Penalties in given circumstances extend only to
Rs.5,000/- and Rs.10,000/- which are small amounts. Further,
even where clandestine removal and intent to evade duty are
present, yet the authorities are given a discretion to levy a
penalty higher than Rs.10,000/- but not exceeding the duty
leviable. In a given case, therefore, even where there is willful
intent to evade duty and the duty amount comes to say a crore
of rupees, the authorities can in the facts and circumstances of
a given case, levy a penalty of say Rs.25,00,000/- or
Rs.50,00,000/-. This being the position, it is clear that when
contrasted with the provisions of the Central Excise Act itself,
the penalty provisions contained in Rules 96ZO, 96 ZP and 96
ZQ are both arbitrary and excessive.
35Page 36
39. A penalty can only be levied by authority of statutory law,
and Section 37 of the Act, as has been extracted above does
not expressly authorize the Government to levy penalty higher
than Rs.5,000/-. This further shows that imposition of a
mandatory penalty equal to the amount of duty not being by
statute would itself make rules 96ZO, 96 ZP and 96 ZQ without
authority of law. We, therefore, uphold the contention of the
assessees in all these cases and strike down rules 96ZO, 96
ZP and 96 ZQ insofar as they impose a mandatory penalty
equivalent to the amount of duty on the ground that these
provisions are violative of Article 14, 19(1)(g) and are ultra vires
the Central Excise Act.
40. It now remains to deal with SLP(civil) No.22134 of 2000,
(APS Associates v. Commissioner of Central Excise). In this
SLP, the Punjab and Haryana High Court has passed a
judgment on 20.5.2008 in which it construed Rule 3(2) of the
Induction Furnace Annual Capacity Determination Rules, 1997.
The said Rule is set out hereinbelow:-
“3. The annual capacity of production referred
to in Rule 2 shall be determined in the following
manner, namely :-
36Page 37
The Commissioner of Central Excise (hereinafter
referred to as the Commissioner) shall call for an
authenticated copy of the manufacturer’s invoice or
trader’s invoice, who have supplied or installed the
furnace or crucible to the induction furnace unit, and
ascertain the total capacity of the furnaces
installed in the factory on the basis of such invoice
or document;
(1) If the invoice or document referred to in
sub rule (1) is not available for any reason with
the manufacturer then the Commissioner shall
ascertain the capacity of the furnaces installed in
the induction furnace unit on the basis of the
capacity of comparable furnaces installed in any
other factory in respect of which the
manufacturer’s invoice or other document indicating
the capacity of the furnace is available or, if not so
possible, on the basis of any other material as
may be relevant for this purpose. The
Commissioner may, if he so desires, consult
any technical authority for this purpose;”
41. On the facts in this case, the assessee made a
declaration dated 9.9.1997 that they will pay lump sum duty on
the basis that their induction furnace has a capacity of only 3.2
metric tons. As they were unable to trace out the original bill,
they worked out their capacity on the basis of a Chartered
Engineer’s Certificate dated 7.9.1997 which stated as follows:-
“REF. : Js CE/97 DATED 07.09.97
197
37Page 38
TO WHOM IT MAY CONCERN
On the request of M/s. A.P.S. ASSOCIATES PVT
LIMITED, I visited their works at D-133, Phase V. Focal
Point. Ludhiana for inspection of the INDUCTION
FURNACE and assessing the capacity thereof.
The party has ONE FURNACE of following
specifications:-
MAKE GEC CAPACITY 3200
KG/1600 KW/1200 V.
While assessing the capacity of a FURNACE for a
particular heat. It may please be noted that besides
crucible size, other factors affecting the capacity are as
follows:
Incoming Power to the crucible from the Power Pack
System of the FURNACE and its quality.
Power fed to the crucible from the Power Pack System of
the FURNACE and its quality.
Quality/Mix of Scrap.
Lining quality and its thickness.
The heatwise capacity may vary for a crucible out over a
given period of time, the average output/Capacity shall
remain almost same.
However, in this case, it may please be noted that at
present, this unit has a sanctioned load of 1680 KVA
(Photocopy enclosed) resulting in a load of 1428 KW, that
can be utilized by the unit. After allowing for an Aux. load
of approximately 125 KW, the load available for melting
shall be approximately 1300 KW. As such, the unit shall
not be able to utilize the full capacity of the furnace i.e.
1600 KW.”
38Page 39
42. The said declaration and Chartered Engineer Certificate
have not been accepted by the authorities below, and the High
Court rejected it on the footing that Rule 3(2) of the aforesaid
Rules did not, in terms, refer to the sanctioned load of electrical
units, and therefore this could not be taken into account for the
purpose of ascertaining the capacity of the furnaces installed in
the induction furnace unit. We find that the Karnataka High
Court Bhuwalka Steel Industries Ltd. v. Union Of India
2003(159) ELT 147 (Kar.), after quoting the aforesaid Rule,
held as follows:-
“11. Section 3-A of the Central Excise Act provides
for a power to change the excise duty on the basis
of capacity of production in respect of the notified
goods. This has been introduced with a view to
safeguard the interest of Revenue and to arrest
evasion of duty. Sub-section (2) of Section 3-A
provides for framing of Rules in the matter of
determination of the annual capacity. It specifically
provides for taking into consideration such factor or
factors relevant for annual capacity of production of
the factory in which goods are produced. Therefore,
relevant factor like power factor is not alien for
determination of annual production capacity in
terms of Section 3-A of the Act. At this stage it is to
be noticed that the formula provided in Rule 3 of the
Induction Furnace Annual Capacity Determination
Rules provides for three contingencies. The first
contingency is the determination on the basis of
authenticated copy of the manufacturers invoice or
39Page 40
traders invoice who have supplied or installed the
furnace. The second contingency is that in the
absence of the invoice document being available for
any reason with the manufacturer that the
Commissioner is to ascertain the capacity on the
basis of the capacity of the comparable furnaces
available in similar industry. The third contingency is
determination of the annual capacity of production
of ingots by formula. The formula is ACP = TCF ×
3200. ACP is nothing but the annual capacity of
production of the factory. TCF is also again referred
to the total capacity. Therefore, capacity plays a
vital role in terms of levy of excess duty.
12. In the case on hand, the petitioner has sought
for an option that the annual capacity is to be
determined on pro rata basis in terms of Rule 96-
ZO(3) of the Rules. Petitioner has produced
sufficient material with regard to power factor being
a relevant one. As I mentioned earlier, it is not the
case of the respondents that power factor is not a
relevant factor in terms of the endorsement.
Helplessness is the answer given in the
endorsement. There is no prohibition under the
rules for taking into consideration the power factor
for determination of the annual capacity. So long as
the power factor is not said to be irrelevant factor,
that factor has to go into the process of
determination in terms of Section 3-A read with the
Rules.”
43. We are in broad agreement with the Karnataka High
Court view as it is clear that the load capacity of an induction
furnace unit is certainly relevant material referred to in Rule 3(2)
to determine the capacity of the furnace installed. It is obvious
that it is not necessary to state such load capacity in terms for it
to be included in Rule 3(2). Agreeing therefore with the
Karnataka High Court’s view we set aside the judgment of the
Punjab and Haryana High Court and declare that a Chartered
Engineer Certificate dealing with the sanctioned electrical load
for a furnace is a relevant consideration which can be looked at
in the absence of other factors mentioned in Rule 3. This
appeal is disposed of accordingly.
44. Conclusion
We have declared in this judgment that the interest and
penalty provisions under the Rules 96ZO, ZP, and ZQ of the
Central Excise Rules, 1994 are invalid for the reasons assigned
in the judgment. Accordingly, the appeals filed by the Revenue
are dismissed and the appeals filed by the assessees are
allowed to the extent indicated above. It may be noted that in
an appeal from a judgment of the Allahabad High Court dated
8.11.2012 in SLP (C) No. 9796/2013, it has been held that the
levy of penalty under the aforesaid provisions is mandatory in
character. In view of what has been held by us today, this
appeal will also have to be allowed in the same terms as the
other assessees’ appeals which have been allowed. All the
aforesaid appeals are disposed of accordingly.
……………………J.
(A.K. Sikri)
……………………J.
New Delhi; (R.F. Nariman)
November 24, 2015.
Print Page
correctly been argued by Shri Radhakrishnan, learned senior
counsel on behalf of the revenue, clarifies the law in holding
that an omission would amount to a repeal. The converse view
of the law has led to an omitted provision being treated as if it
never existed, as Section 6 of the General Clauses Act would
not then apply to allow the previous operation of the provision
so omitted or anything duly done or suffered thereunder. Nor
may a legal proceeding in respect of any right or liability be
instituted, continued or enforced in respect of rights and
liabilities acquired or incurred under the enactment so omitted.
In the vast majority of cases, this would cause great public
mischief, and the decision of Fibre Board’s case is therefore
clearly delivered by this Court for the public good, being, at the
very least a reasonably possible view. Also, no aspect of the
question at hand has remained unnoticed. For this reason also
we decline to accept Shri Aggarwal’s persuasive plea to
reconsider the judgment in Fibre Board’s case. This being
the case, it is clear that on point one the present appeal would
have to be dismissed as being concluded by the decision in the
Fibre Board’s case.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4280 OF 2007
M/S. SHREE BHAGWATI STEEL
ROLLING MILLS …APPELLANT
VERSUS
COMMISSIONER OF CENTRAL EXCISE
& ANR. …RESPONDENTS
WITH
CIVIL APPEAL NO.4281 OF 2007
Dated;November 24, 2015.
Citation;(2016) 3 SCC 643
2. This batch of appeals raises questions relating to the
demand for interest and penalty under Rules 96ZO, 96 ZP and
96 ZQ of the Central Excise Rules, 1994, which were framed in
order to effectuate the provisions contained in Section 3A of the
Central Excise Act, 1994. Several High Courts have struck
down the said Rules relating to penalty as being ultra vires the
parent provision and violative of Articles 14 and 19(1)(g) of the
Constitution. Most of the appeals in this batch are, therefore,
by the Union of India. However, before dealing with the said
appeals, it is necessary to first segregate Civil Appeal No.4280
of 2007 which raises a slightly different question from the
questions raised in the other appeals and decide it first.
3. The question which arises for decision in the said appeal
is the demand, by means of a letter dated 19.8.2005, for
payment of interest for delayed payment of central excise duty
under Section 3A of the Central Excise Act, 1944.
4. The case of the appellant is that it took a rolling mill on
lease for the period from 1997 to 2000 and manufactured
rerolled non-alloyed steel products. On 1.9.1997 the
compounded levy scheme was introduced by way of insertion
of Section 3A of the Central Excise Act. The appellant opted
for the aforesaid scheme under Rule 96ZP of the Central
Excise Rules. When the lease expired, the appellant
surrendered its registration certificate on 1.6.2000. As stated
hereinabove, on 19.8.2005 the impugned notice was issued to
the appellant demanding interest for delayed payment of duty
for the period 1997 to 2000.
5. The High Court framed two questions which arose for its
consideration: (1) whether “omission” of the compounded levy
scheme in 2001 wipes out the liability of the assessee for the
period during which the scheme was in operation, and (2)
whether the letter of demand of interest for delayed payment
was liable to be set aside on the ground of delay.
6. The High Court found, after distinguishing some of the
judgments of this Court, and after relying upon Section 38A of
the Central Excise Act, which was added vide Section 131 of
the Finance Act, 2001, that on omission of Section 3A, the
liability of the assessee was not wiped out.
7. Shri Ajay Aggarwal, learned counsel who appeared on
behalf of the appellant fairly submitted that a recent judgment
delivered by this Bench, namely, M/s Fibre Boards (P) Ltd.,
Bangalore v. Commissioner of Income Tax, Bangalore,
[2015] 376 ITR 596 (SC), would cover the matter before us
being directly against the appellant’s case. However, he
submitted that for various reasons this judgment requires a
relook and ought to be referred to a larger Bench of three
Judges. Shri Aggarwal argued the matter with great ability and
we listened to him with considerable interest.
8. First, it may be stated that the judgment of this Court in
the Fibre Board’s case has taken the view that an “omission”
would amount to a “repeal”, after referring to several authorities
of this Court, G.P. Singh’s Principles of Statutory Interpretation,
Section 6A of the General Clauses Act, 1897, and a passage in
Halsbury’s Laws of England. Ultimately, this Court arrived at
the conclusion that an “omission” would amount to a “repeal” for
the purpose of Section 24 of the General Clauses Act. Since
the same expression, namely, “repeal” is used both in Section 6
and Section 24 of the General Clauses Act, the construction of
the said expression in both sections would, therefore, include
within it “omissions” made by the legislature.
9. Shri Aggarwal, however, argued that there is a
fundamental distinction between a “repeal” and an “omission” in
that in the case of a “repeal” the statute is obliterated from the
very beginning whereas in the case of an “omission” what gets
omitted is only from the date of “omission” and not before. This
being the case, it is clear that things already done in the case of
an “omission” would be saved. However, a “repeal” without a
savings clause like Section 6 of the General Clauses Act would
not so save things already done under the repealed statute. He
further argued that Section 6A which was relied upon by the
Bench in the Fibre Board’s case did not state that an “omission”
would be included within the expression “repeal”, but that if
Section 6A were carefully read, an “omission” would only be
included in an “amendment” which, under the Section, can be
by way of omission, insertion or substitution. Therefore, it is
fallacious to state that Section 6A would lead to the conclusion
that “omissions” are included in “repeals”. He further argued
that in any event, the true ratio decidendi of the Constitution
Bench decision in Rayala Corporation (P) Ltd. & Ors. v.
Director of Enforcement, New Delhi, 1969 (2) SCC 412, is
that an “omission” cannot amount to a “repeal” inasmuch as the
first reason given for distinguishing the Madhya Pradesh High
Court’s judgment in that case was that Section 6 cannot apply
to the omission of a rule because an “omission” is not a
“repeal”. He further argued that as the Madhya Pradesh High
Court’s decision was put forward by the respondent in that case
in support of their argument, the Constitution Bench’s dealing
with the said decision in order to overcome it would necessarily
be the ratio decidendi of the said decision, and being a
Constitution Bench decision, would be binding upon this Bench.
He further referred to Section 31 of the Prevention of Corruption
Act, 1988, which, in his opinion, makes it clear that Parliament
itself has understood that a repeal under Section 6 of the
General Clauses Act would not apply to omissions. He has
further argued that it may be true that the expression “repeal” is
normally used when an entire statute is done away with, as
opposed to an “omission” which is applied only when part of the
statute is deleted, but said that this is not invariably the case,
and referred to Section 1 of the Indian Contract Act in which
enactments mentioned in the schedule are repealed not in their
entirety but only to the extent provided and, therefore, argued
that the expression “repeals” will apply also to a part of an
enactment as opposed to the enactment as a whole.
10. Shri Radhakrishnan, learned senior counsel appearing on
behalf of the revenue supported the judgment of this Court in
the Fibre Board’s case and said that recent judgments
delivered which have clarified the law ought not to be disturbed
in the larger public interest.
11. Since Shri Aggarwal has made detailed submissions on
why according to him the judgment in the Fibre Board’s case is
not correctly decided, we propose to deal with each of those
submissions in some detail.
12. First and foremost, it is important to refer to the definition
of “enactment” contained in Section 3(19) of the General
Clauses Act. The said definition clause states that “enactment”
shall mean the following:-
“enactment" shall include a Regulation (as
hereinafter defined) and any Regulation of the
Bengal, Madras or Bombay Code, and shall also
include any provision contained in any Act or in any
such Regulation as aforesaid.”
13. From this it is clear that when Section 6 speaks of the
repeal of any enactment, it refers not merely to the enactment
as a whole but also to any provision contained in any Act.
Thus, it is clear that if a part of a statute is deleted, Section 6
would nonetheless apply. Secondly, it is clear, as has been
stated by referring to a passage in Halsbury’s Laws of England
in the Fibre Board’s judgment, that the expression “omission” is
nothing but a particular form of words evincing an intention to
abrogate an enactment or portion thereof. This is made further
clear by the Legal Thesaurus (Deluxe Edition) by William C
Burton, 1979 Edition. The expression “delete” is defined by the
Thesaurus as follows:
“Delete: - Blot out, cancel, censor, cross off, cross
out, cut, cut out, dele, discard, do away with, drop,
edit out, efface, elide, eliminate, eradicate, erase,
excise, expel, expunge, extirpate, get rid of, leave
out, modify by excisions, obliterate, omit, remove,
rub out, rule out, scratch out, strike off, take out,
weed wipe out.”
Likewise the expression “omit” is also defined by this Thesaurus
as follows:-
“Omit:- Abstain from inserting, bypass, cast aside,
count out, cut out, delete, discard, dodge, drop
exclude, exclude, fail to do, fail to include, fail to
insert, fail to mention, leave out, leave undone, let
go, let pass, let slip, miss, neglect, omittere, pass
over, praetermittere, skip, slight, transire.”
And the expression “repeal” is defined as follows:-
“Repeal:- Abolish, abrogare, abrogate, annul, avoid,
cancel, countermand, declare null and void, delete,
eliminate, formally withdraw, invalidate, make void,
negate, nullify, obliterate, officially withdraw,
override, overrule, quash, recall, render invalid,
rescind, rescindere, retract, reverse, revoke, set
aside, vacate, void, withdraw.”
14. On a conjoint reading of the three expressions “delete”,
“omit”, and “repeal”, it becomes clear that “delete” and “omit”
are used interchangeably, so that when the expression “repeal”
refers to “delete” it would necessarily take within its ken an
omission as well. This being the case, we do not find any
substance in the argument that a “repeal” amounts to an
obliteration from the very beginning, whereas an “omission” is
only in futuro. If the expression “delete” would amount to a
“repeal”, which the appellant’s counsel does not deny, it is clear
that a conjoint reading of Halsbury’s Laws of England and the
Legal Thesaurus cited hereinabove both lead to the same
result, namely that an “omission” being tantamount to a
“deletion” is a form of repeal.
15. Learned counsel’s second argument that Section 6A
when it speaks of an “omission” only speaks of an
“amendment” which omits and, therefore does not refer to a
repeal is equally fallacious. In Bhagat Ram Sharma v. Union
of India, 1988 Supp SCC 30, this Court held that there is no
real distinction between a repeal and an amendment and that
“amendment” is in fact a wider term which includes deletion of
a provision in an existing statute. In the said judgment, this
Court held:-
“17. It is a matter of legislative practice to provide
while enacting an amending law, that an existing
provision shall be deleted and a new provision
substituted. Such deletion has the effect of repeal of
the existing provision. Such a law may also provide
for the introduction of a new provision. There is no
real distinction between 'repeal' and an
'amendment'. In Sutherland's Statutory
Construction, 3rd Edn., Vol. 1 at p. 477, the learned
author makes the following statement of law:
The distinction between repeal and amendment as
these terms are used by the Courts is arbitrary.
Naturally the use of these terms by the Court is
based largely on how the Legislature have
developed and applied these terms in labelling their
enactments. When a section is being added to an
Act or a provision added to a section, the
Legislatures commonly entitled the Act as an
amendment.... When a provision is withdrawn from
a section, the Legislatures call the Act an
amendment particularly when a provision is added
to replace the one withdrawn. However, when an
entire Act or section is abrogated and no new
section is added to replace it, Legislatures label the
Act accomplishing this result a repeal. Thus as used
by the Legislatures, amendment and repeal may
differ in kind - addition as opposed to withdrawal or
only in degree -abrogation of part of a section as
opposed to abrogation of a whole section or Act; or
more commonly, in both kind and degree - addition
of a provision to a section to replace a provision
being abrogated as opposed by abrogation of a
whole section of an Act. This arbitrary distinction
has been followed by the Courts, and they have
developed separate rules of construction for each.
However, they have recognised that frequently an
Act purporting to be an amendment has the same
qualitative effect as a repeal - the abrogation of an
existing statutory provision -and have therefore
applied the term "implied repeal' and the rules of
construction applicable to repeals to such
amendments.
18. Amendment is in fact, a wider term and it
includes abrogation or deletion of a provision in an
existing statute. If the amendment of an existing law
is small, the Act professes to amend; if it is
extensive, it repeals a law and re-enacts it. An
amendment of substantive law is not retrospective
unless expressly laid down or by necessary'
implication inferred.” (at para 17 & 18)
16. It is clear, therefore, that when this Court referred to
Section 6A in Fibre Board’s case and held that Section 6A
shows that a repeal can be by way of an express omission,
obviously what was meant was that an amendment which
repealed a provision could do so by way of an express
omission. This being the case, it is clear that Section 6A
undisputedly leads to the conclusion that a repeal would include
a repeal by way of an express omission.
17. Learned counsel then argued that while distinguishing the
Madhya Pradesh High Court’s judgment in Rayala Corporation,
a Constitution Bench of this Court expressly held as the first
reason that Section 6 applies only to repeals and not to
omissions. The Fibre Board’s judgment has clearly held as
follows:
“First and foremost, it will be noticed that two
reasons were given in Rayala Corporation (P) Ltd.
for distinguishing the Madhya Pradesh High Court
judgment. Ordinarily, both reasons would form the
ratio decidendi for the said decision and both
reasons would be binding upon us. But we find that
once it is held that Section 6 of the General Clauses
Act would itself not apply to a rule which is
subordinate legislation as it applies only to a Central
Act or Regulation, it would be wholly unnecessary to
state that on a construction of the word “repeal” in
Section 6 of the General Clauses Act, “omissions”
made by the legislature would not be included.
Assume, on the other hand, that the Constitution
Bench had given two reasons for the nonapplicability
of Section 6 of the General Clauses
Act. In such a situation, obviously both reasons
would be ratio decidendi and would be binding upon
a subsequent bench. However, once it is found that
Section 6 itself would not apply, it would be wholly
superfluous to further state that on an interpretation
of the word “repeal”, an “omission” would not be
included. We are, therefore, of the view that the
second so-called ratio of the Constitution Bench in
Rayala Corporation (P) Ltd. cannot be said to be a
ratio decidendi at all and is really in the nature of
obiter dicta.” (at para 27)
18. Merely because the Constitution Bench referred to a
repeal not amounting to an omission as the first reason given
for distinguishing the Madhya Pradesh High Court’s judgment
would not undo the effect of paragraph 27 of Fibre Board’s
case which, as has already been stated, clearly makes the
distinction between Section 6 not applying at all and Section 6
being construed in a particular manner. Obviously, if the
Section were not to apply at all, any construction of the Section
would necessarily be in the nature of obiter dicta.
19. We also find that Section 6 could not possibly apply to the
facts in Rayala Corporation’s case for yet another reason.
Clause 2 of the amendment rules which was referred to in
paragraph 14 of the judgment in Rayala Corporation reads as
follows:-
“In the Defence of India Rules, 1962, rule 132A
(relating to prohibition of dealings in foreign
exchange) shall be omitted except as respects
things done or omitted to be done under that rule.”
20. A cursory reading of clause 2 shows that after omitting
Rule 132A of the Defence of India Rules, 1962, the provision
contains its own saving clause. This being the case, Section 6
can in any case have no application as Section 6 only applies
to a Central Act or regulation “unless a different intention
appears”. A different intention clearly appears on a reading of
clause 2 as only a very limited savings clause is incorporated
therein. In fact, this aspect is noticed by the Constitution Bench
in paragraph 18 of its judgment, in which the Constitution
Bench states:-
“As we have indicated earlier, the notification of the
Ministry of Home Affairs omitting Rule 132-A of the
D.I.Rs. did not make any such provision similar to
that contained in Section 6 of the General Clauses
Act.”
21. It was then urged before us that Section 31 of the
Prevention of Corruption Act, 1988 would also lead to the
conclusion that Parliament itself is cognizant of the fact that an
omission cannot amount to a repeal. Section 31 of the
Prevention of Corruption Act, 1988, states as follows:-
“Section 31 - Omission of certain sections of Act 45
of 1860
Sections 161 to 165A (both inclusive) of the Indian
Penal Code, 1860 (45 of 1860) shall be omitted,
and section 6 of the General Clauses Act, 1897 (10
of 1897), shall apply to such omission as if the said
sections had been repealed by a Central Act.”
22. It is settled law that Parliament is presumed to know the
law when it enacts a particular piece of legislation. The
Prevention of Corruption Act was passed in the year 1988, that
is long after 1969 when the Constitution Bench decision in
Rayala Corporation had been delivered. It is, therefore,
presumed that Parliament enacted Section 31 knowing that the
decision in Rayala Corporation had stated that an omission
would not amount to a repeal and it is for this reason that
Section 31 was enacted. This again does not take us further as
this statement of the law in Rayala Corporation is no longer the
law declared by the Supreme Court after the decision in the
Fibre Board’s case. This reason therefore again cannot avail
the appellant.
23. The reference to the savings provision in Section 1 of the
Indian Contract Act again does not take us very much further as
the expression “repeal” as has been pointed out above can be
of part of an enactment also. This being the case, when the
legislature uses the word “omit” it usually does so when it
wishes to delete a particular section as opposed to deleting an
entire Act. As has been noticed both in Fibre Board’s case and
19Page 20
hereinabove, these are all expressions which only go to form
and not to substance. Even assuming for the sake of argument
that we were inclined to agree with Shri Aggarwal, given the
force of his inexorable logic, this Court has laid down the
parameters of when it would be expedient to have a relook at a
particular decision in the case of Keshav Mills Co. Ltd. v. CIT,
Bombay North, 1965 (2) SCR 908, as follows.-
“In dealing with the question as to whether the
earlier decisions of this Court in the New Jehangir
Mills [1959]37ITR11(SC) case and the Petlad Co.
Ltd. [1963] S.C.R. 871 case should be
reconsidered and revised by us, we ought to be
clear as to the approach which should be adopted in
such cases. Mr. Palkhivala has not disputed the fact
that, in proper case, this Court has inherent
jurisdiction to reconsider and revise its earlier
decisions, and so, the abstract question as to
whether such a power vests in this Court or not
need not detain us. In exercising this inherent
power, however, this would naturally like to impose
certain reasonable limitations and would be
reluctant to entertain pleas for the reconsideration
and revision of its earlier decisions, unless it is
satisfied that there are compelling and substantial
reasons to do so. It general judicial experience that
in matters of law involving question of constructing
statutory or constitutional provisions, two views are
often reasonably possible and when judicial
approach has to make a choice between the two
reasonably possible views, the process of decisionmaking
is often very difficult and delicate. When this
Court hears appeals against decisions of the High
Courts and is required to consider the propriety or
correctness of the view taken by the High Courts on
any point of law, it would be open to this Court to
hold that though the view taken by the High Court is
reasonably possible, the alternative view which is
also reasonably possible is better and should be
preferred. In such a case, the choice is between the
view taken by the High Court whose judgment is
under appeal, and the alternative view which
appears to this Court to be more reasonable; and in
accepting it own view in preference to that of the
High Court, this Court would be discharging its duty
as Court of Appeal. But different considerations
must inevitably arise where a previous decision of
this Court has taken a particular view as to the
construction of a statutory provision as, for instance,
section 66(4) of the Act. When it is urged that the
view already taken by this Court should be reviewed
and revised, it may not necessarily be an adequate
reason for such review and revision to hold that
though the earlier view is a reasonably possible
view, the alternative view which is pressed on the
subsequent occasion is more reasonable. In
reviewing and revising its earlier decision, this Court
should ask itself whether in interests of the public
good or for any other valid and compulsive reasons,
it is necessary that the earlier decision should be
revised. When this Court decides questions of law,
its decisions are, under Article 141, binding on all
courts within the territory of India, and so, it must be
the constant endeavour and concern of this Court to
introduce and maintain an element of certainty and
continuity in the interpretation of law in the country.
Frequent exercise by this Court of its power to
review its earlier decisions on the ground that the
view pressed before it later appears to the Court to
be more reasonable, may incidentally tend to make
law uncertain and introduce confusion which must
be consistently avoided. That is not to say that if on
a subsequent occasion, the Court is satisfied that its
21Page 22
earlier decision was clearly erroneous, it should
hesitate to correct the error; but before a previous
decision is pronounced to be plainly erroneous, the
Court must satisfied with a fair amount of unanimity
amongst its members that a revision of the said
view is fully justified. It is not possible or desirable,
and in any case it would be inexpedient to lay down
any principles which should govern the approach of
the Court in dealing with the question of reviewing
and revising its earlier decisions. It would always
depend upon several relevant considerations:- What
is the nature of the infirmity or error on which a plea
for review and revision of the earlier view is based?
On the earlier occasion, did some patent aspects of
the question remain unnoticed, or was the attention
of the Court not drawn to any relevant and material
statutory provision, or was any previous decision of
this Court bearing on the point not noticed? Is the
Court hearing such plea fairly unanimous that there
is such an error in the earlier view? What would be
the impact of the error on the general administration
of law or on public good ? Has the earlier decision
been followed on subsequent occasions either by
this Court or by the High Courts ? And, would the
reversal of the earlier decision lead to public
inconvenience, hardship or mischief ? These and
other relevant considerations must be carefully
borne in mind whenever this Court is called upon to
exercise its jurisdiction to review and review and
revise its earlier decisions.” (at page 921-922)
24. Fibre Board’s case is a recent judgment which, as has
correctly been argued by Shri Radhakrishnan, learned senior
counsel on behalf of the revenue, clarifies the law in holding
that an omission would amount to a repeal. The converse view
of the law has led to an omitted provision being treated as if it
never existed, as Section 6 of the General Clauses Act would
not then apply to allow the previous operation of the provision
so omitted or anything duly done or suffered thereunder. Nor
may a legal proceeding in respect of any right or liability be
instituted, continued or enforced in respect of rights and
liabilities acquired or incurred under the enactment so omitted.
In the vast majority of cases, this would cause great public
mischief, and the decision of Fibre Board’s case is therefore
clearly delivered by this Court for the public good, being, at the
very least a reasonably possible view. Also, no aspect of the
question at hand has remained unnoticed. For this reason also
we decline to accept Shri Aggarwal’s persuasive plea to
reconsider the judgment in Fibre Board’s case. This being
the case, it is clear that on point one the present appeal would
have to be dismissed as being concluded by the decision in the
Fibre Board’s case.
25. Even on the point of limitation, we find that the High Court
noticed that the assessee undertook to pay the amount with
interest upto 31.3.2003, on which date a last part payment was
23Page 24
made. As the demand was raised by the Department on
19.8.2005 i.e. within a period of three years from 31.3.2003, it is
clear that the said recovery notice would not be beyond the
time limit.
26. However, Shri Aggarwal has also argued that in this
appeal as well as in Civil Appeal No.4281 and 4282 of 2007,
the Rule providing for payment of interest would itself be ultra
vires inasmuch as Section 3A of the Act does not itself provide
for the payment of interest. He argued that despite the fact that
this point was not raised before any of the authorities below he
ought to be allowed to raise it for the first time in this Court not
only as it is a pure question of law but also because, according
to him, this Court has held that rules which are ultra vires ought
to be ignored by the courts even if there is no substantive
challenge to them.
27. Shri Radhakrishnan, learned senior advocate appearing
for the revenue, strongly contradicts this position and has
vehemently argued that since this issue was never raised
before the authorities below, this Court should not allow the
appellant to raise it at this belated stage. He further submitted
that in any case it would not be necessary for the statute to
provide for interest and it is good enough that subordinate
legislation in the nature of a rule could do so. Inasmuch as
these cases relate to interest and penalty leviable under certain
provisions of the Central Excise Rules, it may be necessary to
set out the said provisions. They read as follows:
“RULE 96ZO. Procedure to be followed by the
manufacturer of ingots and billets.
(3)……..
Provided also that where a manufacturer fails to pay
the whole of the amount payable for any month by
the 15th day or the last day of such month, as the
case may be, he shall be liable to,-
(i) Pay the outstanding amount of duty along with
interest thereon at the rate of eighteen per cent. per
annum, calculated for the period from the 16th day of
such month or the 1st day of next month, as the
case may be, till the date of actual payment of the
outstanding amount; and
(ii) A penalty equal to such outstanding amount of
duty or five thousand rupees, whichever is greater.”
RULE 96ZP. Procedure to be followed by the
manufacturer of hot rolled products.
(3)…….
Provided also that where a manufacturer fails to pay
the whole of amount of duty payable for any month
by the 10th day of such month, he shall be liable to
pay, -
(i) The outstanding amount of duty along with
interest thereon at the rate of eighteen per cent. per
annum calculated for the period from the 11th day of
such month till the date of actual payment of the
outstanding amount; and
(ii) A penalty equal to the amount of duty
outstanding from him at the end of such month or
five thousand rupees, whichever is greater.
Rule 96ZQ Procedure to be followed by the
independent processor of textile fabrics.
(5) If an independent processor fails to pay the
amount of duty or any part thereof by the date
specified in sub-rule (3), he shall be liable to,-
(i) Pay the outstanding amount of duty along with
interest at the rate of thirty-six per cent per annum
calculated for the outstanding period on the
outstanding amount; and
(ii) A penalty equal to an amount of duty
outstanding from him or rupees five thousand,
whichever is greater.”
28. Shri Aggarwal in order to buttress his submission that he
ought to be allowed to raise a pure question of law going to the
very jurisdiction to levy interest cited before us the judgment in
Bhartidasan University and Another v. All-India Council for
Technical Education, 2001 (8) SCC 676, and in particular
paragraph 14 thereof which reads as follow:-
“The fact that the Regulations may have the force of
law or when made have to be laid down before the
legislature concerned do not confer any more
sanctity or immunity as though they are statutory
provisions themselves. Consequently, when the
power to make Regulations are confined to certain
limits and made to flow in a well defined canal within
stipulated banks, those actually made or shown and
found to be not made within its confines but outside
them, the Courts are bound to ignore them when
the question of their enforcement arise and the
mere fact that there was no specific relief sought for
to strike down or declare them ultra vires,
particularly when the party in sufferance is a
Respondent to the lis or proceedings cannot confer
any further sanctity or authority and validity which it
is shown and found to obviously and patently lack. It
would, therefore, be a myth to state that
Regulations made under Section 23 of the Act have
"Constitutional" and legal status, even unmindful of
the fact that anyone or more of them are found to be
not consistent with specific provisions of the Act
itself. Thus, the Regulations in question, which the
AICTE could not have made so as to bind
universities/UGC within the confines of the powers
conferred upon it, cannot be enforced against or
bind an University in the matter of any necessity to
seek prior approval to commence a new department
or course and programme in technical education in
any university or any of its departments and
constituent institutions.”
29. It would be seen that Shri Aggarwal is on firm ground
because this Court has specifically stated that rules or
regulations which are in the nature of subordinate legislation
which are ultra vires are bound to be ignored by the courts
when the question of their enforcement arises and the mere
fact that there is no specific relief sought for to strike down or
declare them ultra vires would not stand in the court’s way of
not enforcing them. We also feel that since this is a question of
the very jurisdiction to levy interest and is otherwise covered by
a Constitution Bench decision of this Court, it would be a
travesty of justice if we would not to allow Shri Aggarwal to
make this submission.
30. On merits, the matter is no longer res integra. A
Constitution Bench decision of this Court in VVS Sugars v.
Government of A.P., 1999 (4) SCC 192, has held, following
two earlier judgments of this Court, as follows:-
“This Court in India Carbon Ltd. v. State of
Assam [(1997) 6 SCC 479] has held, after analysing
the Constitution Bench judgment in J.K. Synthetics
Ltd. v. CTO [(1994) 4 SCC 276] that interest can be
levied and charged on delayed payment of tax only
if the statute that levies and charges the tax makes
a substantive provision in this behalf. There being
no substantive provision in the Act for the levy of
interest on arrears of tax that applied to purchases
of sugarcane made subsequent to the date of
commencement of the amending Act, no interest
thereon could be so levied, based on the application
of the said Rule 45 or otherwise.”
28Page 29
31. Applying the Constitution Bench decision stated above, it
will have to be declared that since Section 3A which provides
for a separate scheme for availing facilities under a compound
levy scheme does not itself provide for the levying of interest,
Rules 96 ZO, 96 ZP and 96 ZQ cannot do so and therefore on
this ground the appellant in Shree Bhagwati Steel Rolling Mills
has to succeed. On this ground alone therefore the impugned
judgment is set aside. That none of the other provisions of the
Central Excise Act can come to the aid of the Revenue in cases
like these has been laid down by this Court in Hans Steel
Rolling Mill v. CCE, (2011) 3 SCC 748 as follows:
“13. On going through the records it is clearly
established that the appellants are availing the
facilities under the compound levy scheme, which
they themselves opted for and filed declarations
furnishing details about the annual capacity of
production and duty payable on such capacity of
production. It has to be taken into consideration that
the compounded levy scheme for collection of duty
based on annual capacity of production under
Section 3 of the Act and the 1997 Rules is a
separate scheme from the normal scheme for
collection of Central excise duty on goods
manufactured in the country. Under the same, Rule
96-ZP of the Central Excise Rules stipulate the
method of payment and Rule 96-ZP contains
detailed provision regarding time and manner of
payment and it also contains provisions relating to
29Page 30
payment of interest and penalty in event of delay in
payment or non-payment of dues. Thus, this is a
comprehensive scheme in itself and general
provisions in the Act and the Rules are excluded.”
(at page 751)
32. We now come to the other appeals which concern
themselves with penalties that are leviable under Rules 96 ZO,
96 ZP and 96 ZQ. Since the lead judgment is a detailed
judgment by a Division Bench of the Gujarat High Court
reported in Krishna Processors v. Union of India, 2012 (280)
ELT 186 (Guj.) and followed by other High Courts, we will refer
only to this decision.
33. On the facts before the Gujarat High Court, there were
three civil applications each of which challenged the
constitutional validity of the aforesaid rules insofar as they
prescribed the imposition of a penalty equal to the amount of
duty outstanding without any discretion to reduce the same
depending upon the time taken to deposit the duty. The
Gujarat High Court struck down the aforesaid Rules on the
basis that not only were they ultra vires the Act but they were
arbitrary and unreasonable and therefore violative of Articles 14
and 19(1)(g) of the Constitution.
34. Shri Radhakrishnan, learned senior advocate appearing
on behalf of the revenue found it extremely difficult to argue that
the aforesaid judgment was wrong. He therefore asked us to
limit the effect of the judgment when it further held that after
omission of the aforesaid Rules with effect from 1.3.2001 no
proceedings could have been initiated thereunder. In this
submission he is correct for the simple reason that the Gujarat
High Court followed Rayala Corporation in holding that
“omissions” would not amount to “repeals”, which this Court
has now clarified is not the correct legal position.
35. However, insofar the reasoning of the High Court is
concerned on the aspects stated hereinabove, we find that on
all three counts it is unexceptionable. First and foremost, a
delay of even one day would straightaway, without more, attract
a penalty of an equivalent amount of duty, which may be in
crores of rupees. It is clear that as has been held by this Court,
penalty imposable under the aforesaid three Rules is inflexible
and mandatory in nature. The High Court is, therefore, correct
in saying that an assessee who pays the delayed amount of
duty after 100 days is to be on the same footing as an
assessee who pays the duty only after one day’s delay and that
therefore such rule treats unequals as equals and would,
therefore, violate Article 14 of the Constitution of India. It is also
correct in saying that there may be circumstances of force
majeure which may prevent a bonafide assessee from paying
the duty in time, and on certain given factual circumstances,
despite there being no fault on the part of the assessee in
making the deposit of duty in time, a mandatory penalty of an
equivalent amount of duty would be compulsorily leviable and
recoverable from such assessee. This would be extremely
arbitrary and violative of Article 14 for this reason as well.
Further, we agree with the High Court in stating that this would
also be violative of the appellant’s fundamental rights under
Article 19(1)(g) and would not be saved by Article 19(6), being
an unreasonable restriction on the right to carry on trade or
business. Clearly the levy of penalty in these cases of a
mandatory nature for even one day’s delay, which may be
beyond the control of the assessee, would be arbitrary and
excessive. In such circumstances, this Court has held in Md.
Faruk v. State of M.P., 1970(1) SCR 156:
32Page 33
“The Court must in considering the validity of the
impugned law imposing a prohibition on the carrying
on of a business or profession, attempt an
evaluation of its direct and immediate impact upon
the fundamental rights of the citizens affected
thereby and the larger public interest sought to be
ensured in the light of the object sought to be
achieved, the necessity to restrict the citizen's
freedom, the inherent pernicious nature of the act
prohibited or its capacity or tendency to be harmful
to the general public, the possibility of achieving the
object by imposing a less drastic restraint, and in
the absence of exceptional situations such as the
prevalence of a state of emergency-national or
local-or the necessity to maintain essential supplies,
or the necessity to stop activities inherently
dangerous, the existence of a machinery to satisfy
the administrative authority that no case for
imposing the restriction is made out or that a less
drastic restriction may ensure the object intended to
be achieved.” (at page 161)
36. The direct and immediate impact upon the fundamental
right of the citizen is that he is exposed to a huge liability by
way of penalty for reasons which may in given circumstances
be beyond his control and/or for delay which may be minimal.
The possibility of achieving the object of deterrence in such
cases can be achieved by imposing a less drastic restraint. In
point of fact when we contrast these provisions with Section 37
of the Act, it becomes clear how arbitrary and excessive they
are.
37. Section 37(3) and 37(4) of the Central Excise Act reads
as follows:-
“Section 37. Power of Central Government to make
rules. —
(3) In making rules under this section, the Central
Government may provide that any person
committing a breach of any rule shall, where no
other penalty is provided by this Act, be liable to a
penalty not exceeding five thousand rupees.
(4) Notwithstanding anything contained in subsection
(3), and without prejudice to the provisions
of section 9, in making rules under this section, the
Central Government may provide that if any
anufacturer, producer or licensee of a warehouse
—
(a) removes any excisable goods in contravention of
the provisions of any such rule, or
(b) does not account for all such goods
manufactured, produced or stored by him, or
(c) engages in the manufacture, production or
storage of such goods without having applied for the
registration required under section 6, or
(d) contravenes the provisions of any such rule with
intent to evade payment of duty,
then, all such goods shall be liable to confiscation
and the manufacturer, producer or licensee shall be
liable to a penalty not exceeding the duty leviable
on such goods or ten thousand rupees, whichever is
greater;”
38. Under Section 37(3), the statute itself provides in all
cases where no other penalty is provided by the Act that a
34Page 35
penalty not exceeding Rs.5,000/- alone can be levied. SubSection(4)
is even more telling. Even in cases where there is a
clandestine removal of excisable goods, and cases where the
assessee intends to evade payment of duty, the assessee is
liable to a penalty not exceeding the duty leviable on such
goods or Rs.10,000/- whichever is greater. It will be noticed
that the Act is very circumspect in laying down penalty
provisions. Penalties in given circumstances extend only to
Rs.5,000/- and Rs.10,000/- which are small amounts. Further,
even where clandestine removal and intent to evade duty are
present, yet the authorities are given a discretion to levy a
penalty higher than Rs.10,000/- but not exceeding the duty
leviable. In a given case, therefore, even where there is willful
intent to evade duty and the duty amount comes to say a crore
of rupees, the authorities can in the facts and circumstances of
a given case, levy a penalty of say Rs.25,00,000/- or
Rs.50,00,000/-. This being the position, it is clear that when
contrasted with the provisions of the Central Excise Act itself,
the penalty provisions contained in Rules 96ZO, 96 ZP and 96
ZQ are both arbitrary and excessive.
35Page 36
39. A penalty can only be levied by authority of statutory law,
and Section 37 of the Act, as has been extracted above does
not expressly authorize the Government to levy penalty higher
than Rs.5,000/-. This further shows that imposition of a
mandatory penalty equal to the amount of duty not being by
statute would itself make rules 96ZO, 96 ZP and 96 ZQ without
authority of law. We, therefore, uphold the contention of the
assessees in all these cases and strike down rules 96ZO, 96
ZP and 96 ZQ insofar as they impose a mandatory penalty
equivalent to the amount of duty on the ground that these
provisions are violative of Article 14, 19(1)(g) and are ultra vires
the Central Excise Act.
40. It now remains to deal with SLP(civil) No.22134 of 2000,
(APS Associates v. Commissioner of Central Excise). In this
SLP, the Punjab and Haryana High Court has passed a
judgment on 20.5.2008 in which it construed Rule 3(2) of the
Induction Furnace Annual Capacity Determination Rules, 1997.
The said Rule is set out hereinbelow:-
“3. The annual capacity of production referred
to in Rule 2 shall be determined in the following
manner, namely :-
36Page 37
The Commissioner of Central Excise (hereinafter
referred to as the Commissioner) shall call for an
authenticated copy of the manufacturer’s invoice or
trader’s invoice, who have supplied or installed the
furnace or crucible to the induction furnace unit, and
ascertain the total capacity of the furnaces
installed in the factory on the basis of such invoice
or document;
(1) If the invoice or document referred to in
sub rule (1) is not available for any reason with
the manufacturer then the Commissioner shall
ascertain the capacity of the furnaces installed in
the induction furnace unit on the basis of the
capacity of comparable furnaces installed in any
other factory in respect of which the
manufacturer’s invoice or other document indicating
the capacity of the furnace is available or, if not so
possible, on the basis of any other material as
may be relevant for this purpose. The
Commissioner may, if he so desires, consult
any technical authority for this purpose;”
41. On the facts in this case, the assessee made a
declaration dated 9.9.1997 that they will pay lump sum duty on
the basis that their induction furnace has a capacity of only 3.2
metric tons. As they were unable to trace out the original bill,
they worked out their capacity on the basis of a Chartered
Engineer’s Certificate dated 7.9.1997 which stated as follows:-
“REF. : Js CE/97 DATED 07.09.97
197
37Page 38
TO WHOM IT MAY CONCERN
On the request of M/s. A.P.S. ASSOCIATES PVT
LIMITED, I visited their works at D-133, Phase V. Focal
Point. Ludhiana for inspection of the INDUCTION
FURNACE and assessing the capacity thereof.
The party has ONE FURNACE of following
specifications:-
MAKE GEC CAPACITY 3200
KG/1600 KW/1200 V.
While assessing the capacity of a FURNACE for a
particular heat. It may please be noted that besides
crucible size, other factors affecting the capacity are as
follows:
Incoming Power to the crucible from the Power Pack
System of the FURNACE and its quality.
Power fed to the crucible from the Power Pack System of
the FURNACE and its quality.
Quality/Mix of Scrap.
Lining quality and its thickness.
The heatwise capacity may vary for a crucible out over a
given period of time, the average output/Capacity shall
remain almost same.
However, in this case, it may please be noted that at
present, this unit has a sanctioned load of 1680 KVA
(Photocopy enclosed) resulting in a load of 1428 KW, that
can be utilized by the unit. After allowing for an Aux. load
of approximately 125 KW, the load available for melting
shall be approximately 1300 KW. As such, the unit shall
not be able to utilize the full capacity of the furnace i.e.
1600 KW.”
38Page 39
42. The said declaration and Chartered Engineer Certificate
have not been accepted by the authorities below, and the High
Court rejected it on the footing that Rule 3(2) of the aforesaid
Rules did not, in terms, refer to the sanctioned load of electrical
units, and therefore this could not be taken into account for the
purpose of ascertaining the capacity of the furnaces installed in
the induction furnace unit. We find that the Karnataka High
Court Bhuwalka Steel Industries Ltd. v. Union Of India
2003(159) ELT 147 (Kar.), after quoting the aforesaid Rule,
held as follows:-
“11. Section 3-A of the Central Excise Act provides
for a power to change the excise duty on the basis
of capacity of production in respect of the notified
goods. This has been introduced with a view to
safeguard the interest of Revenue and to arrest
evasion of duty. Sub-section (2) of Section 3-A
provides for framing of Rules in the matter of
determination of the annual capacity. It specifically
provides for taking into consideration such factor or
factors relevant for annual capacity of production of
the factory in which goods are produced. Therefore,
relevant factor like power factor is not alien for
determination of annual production capacity in
terms of Section 3-A of the Act. At this stage it is to
be noticed that the formula provided in Rule 3 of the
Induction Furnace Annual Capacity Determination
Rules provides for three contingencies. The first
contingency is the determination on the basis of
authenticated copy of the manufacturers invoice or
39Page 40
traders invoice who have supplied or installed the
furnace. The second contingency is that in the
absence of the invoice document being available for
any reason with the manufacturer that the
Commissioner is to ascertain the capacity on the
basis of the capacity of the comparable furnaces
available in similar industry. The third contingency is
determination of the annual capacity of production
of ingots by formula. The formula is ACP = TCF ×
3200. ACP is nothing but the annual capacity of
production of the factory. TCF is also again referred
to the total capacity. Therefore, capacity plays a
vital role in terms of levy of excess duty.
12. In the case on hand, the petitioner has sought
for an option that the annual capacity is to be
determined on pro rata basis in terms of Rule 96-
ZO(3) of the Rules. Petitioner has produced
sufficient material with regard to power factor being
a relevant one. As I mentioned earlier, it is not the
case of the respondents that power factor is not a
relevant factor in terms of the endorsement.
Helplessness is the answer given in the
endorsement. There is no prohibition under the
rules for taking into consideration the power factor
for determination of the annual capacity. So long as
the power factor is not said to be irrelevant factor,
that factor has to go into the process of
determination in terms of Section 3-A read with the
Rules.”
43. We are in broad agreement with the Karnataka High
Court view as it is clear that the load capacity of an induction
furnace unit is certainly relevant material referred to in Rule 3(2)
to determine the capacity of the furnace installed. It is obvious
that it is not necessary to state such load capacity in terms for it
to be included in Rule 3(2). Agreeing therefore with the
Karnataka High Court’s view we set aside the judgment of the
Punjab and Haryana High Court and declare that a Chartered
Engineer Certificate dealing with the sanctioned electrical load
for a furnace is a relevant consideration which can be looked at
in the absence of other factors mentioned in Rule 3. This
appeal is disposed of accordingly.
44. Conclusion
We have declared in this judgment that the interest and
penalty provisions under the Rules 96ZO, ZP, and ZQ of the
Central Excise Rules, 1994 are invalid for the reasons assigned
in the judgment. Accordingly, the appeals filed by the Revenue
are dismissed and the appeals filed by the assessees are
allowed to the extent indicated above. It may be noted that in
an appeal from a judgment of the Allahabad High Court dated
8.11.2012 in SLP (C) No. 9796/2013, it has been held that the
levy of penalty under the aforesaid provisions is mandatory in
character. In view of what has been held by us today, this
appeal will also have to be allowed in the same terms as the
other assessees’ appeals which have been allowed. All the
aforesaid appeals are disposed of accordingly.
……………………J.
(A.K. Sikri)
……………………J.
New Delhi; (R.F. Nariman)
November 24, 2015.
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