1. This matter has been referred to the Larger Bench for decision on the following points: (i) whether the decision in the case of Machino Montell Ltd. 2004 (168) E.L.T. 466 (Tribunal) would apply to penalties under the Customs Act, 1962 as decided in the case of Jindal Vijaynagar Steel 2004 (177) E.L.T. 937 or it would not apply as held in the case of Saheli Synthetics Pvt. Ltd. vide Order Nos. A/681 to 683/2005-WZB/C-III, dated 19.7.2005 [2006 (197) E.L.T. 337 (Tribunal)].
1.2 We have heard ld. Advocates and ld. DR and have considered the submissions made. After considering the material it is found.
(a) Causes for arriving at penalties under the Customs Act, 1962 and Central Excise Act, 1944 are not similar, inasmuch as the Former Act raises liability to penalty for transgressions and violation of import/export prohibitions without or with Customs duty infringement while the Later Act chiefly concerns itself as a Revenue Generation measure with penalties related & consequent to such Revenue Generation effort only. The objectives in provisions of Sections 114A & 11AC may be comparable, other penalty provisions e.g.
Sections 112 or 114 & 116 of Customs Act, 1962 are suigeneris.
(b) A reading of Section 28 of the Customs Act, 1962, provides for recovery of duties having escaped assessment, Para 2B of which reads as under.
Where any duty has not been levied or has been short levied or erroneously refunded, or any interest payable has not been paid, part paid or erroneously refunded, the person, chargeable with the duty or the interest may pay the amount of duty or interest before service of notice on him under Sub-section (1) in respect of the duty or the interest, as the case may be, and inform the proper officer of such payment in writing, who, on receipt of such information, shall not serve any notice under Sub-section (1) in respect of the duty or the interest so paid: Provided that the proper officer may determine the amount of short payment of duty or interest, if any, which in his opinion has not been paid by such person and, then, the proper officer shall proceed to recover such amount in the manner specified in this section, and the period of 'one year' or six months as the case may be, referred to in Sub-section (1) shall be counted from the date of receipt of such information of payment.
(i) legislative prescription of the issue of show cause notice on the cut off date by which time, if the duty was paid then no notice was required to be issued/served under the provisions of Section 28(1) of the Customs Act, 1962.
(ii) That no notice is envisaged under Sub-section 28(1) to be issued on account of the payment of duty amounts effected before issue of such notice would imply that no further determination of duty by the proper officer was required to be arrived at. Since there would be no determination of duty under Section 28(2B), the provisions of Section 114A could not be attracted as would appear clearly from reading of provisions Section 114A of the Customs Act, 1962.
(c) Since legislative prescribed procedure, is not to issue notice, in cases where payments of the amounts at a time prior to the notice have been effected, is without any pre-conditions as regards causes/reasons for such payments required to be made or effected, it would not make a difference whether such duty was paid before or after the intervention by the departmental officers in any form or manner, this would include the fact of search, seizure etc.
Therefore we cannot find the view taken in the case of Saheli Synthetics Pvt. Ltd. vide Order Nos. A/681 to 683/2005-WZB/C-III, dtd. 19.7.2005 to uphold that there is a call for a differentiation, in approach based on reasons of intervention by the department; rendering the consequent payments effected, on re-assessment clearance of Customs goods already made or when effected otherwise.
1.3 The Larger Bench in the case of Machine Montell Ltd. 2004 (168) E.L.T. 466 (Tri. - LB) held that if duty was paid before the issue of show cause notice, no penalty or interest would be levied. This decision would hold good in cases under the Customs Act, 1962 also, when it is a simplicitor duty demand based on the re-assessment being effected read with Section 114A or otherwise. The decision of the Larger Bench in the case of Machino Montell Ltd. 2004 (168) E.L.T. 466 (Tribunal) has followed the decision of the Honourable Kamataka High Court in case of Commissioner v. Shree Krishna Pipe Ltd. as well as the decision of the Honourable Supreme Court in case of Rashtriya Ispat Nigam Ltd. v. Commissioner 2004 (163) E.L.T. A53. Apart from the aforesaid decision the Hon'ble Madras High Court in CCE v. Jkon Engineering (P) Ltd. 2005 (67) RLT 157 as well as the Honourable Bombay High Court in case of CCE v. Gaumv Mercantiles Ltd. also held similar view. Nothing contrary has been shown and in the circumstances we would uphold the applicability of the decision in the case of Machino Montell Ltd. 2004 (168) E.L.T. 466 (Tribunal) as regards penalty under Section 114A and interest liabilities since we find that the provisions of Sections 11A and 11AC of the Central Excise Act, 1944 are pari materia, with the provisions of Section 28(2)B and Section 114A of the Customs Act, 1962. We would therefore hold that the findings, in the case of Jindal Vijaynagar Steel 2004 (177) E.L.T. 937, to be applicable only as regards the penalty liabilities, under Section 114A of Customs Act, 1962 along with interest liability consequent thereto, to be covered by the reasoning as in Machino Montell case.
1.4 The ld. DR's contention was that the on facts the decision of Rashtriya Ispat Nigam Ltd. 2003 (161) E.L.T. 285 (Tri. - Bang), CCE, Delhi v. Machino Montell 2004 (62) RLT 709 LB and CCE v. Shree Krishna Pipe Ind. did not have the ingredients of Section 11AC to be existing and hence Section 11AC was not applicable and that the decision of the Larger Bench in the case of Jay Yuhshin L v. CCE, Delhi binding since there is no stay granted by the Hon'ble Apex Court, only a Civil Appeal being admitted as reported in the 2002 (139) E.L.T. A179 (S.C.). It was contended that the jay Yuhshin view should prevail as decision in the case of Machino Montell 2004 (62) RLT 709 LB would be per incurium. It is submitted that the element of fraud or suppression or intention to evade duty if found, then, even when duty was paid prior issue of show cause notice, penalty was imposable, was view as upheld in the case of Jay Yuhshin v. CCE, Delhi and would be binding in this case. This bench is not considering the validity of the decision in the case of Machino Montell 2004 (62) RLT 709 (LB), but is considering what has been upheld by the Larger Bench in the case of Machino Montell 2004 (62) RLT 709 (LB). The Machino Montell decision is a later decision and the ratio therein is only required to be considered. The plea of reliance on decision in the case of Jay Yuhshin L v. CCE, Delhi has to be rejected as the basis on which decision is to be relied upon is not an issue before this bench.
That the introduction of Section 28(2)(B2) from 11.5.2001 deals with situation where duty paid prior of issue of show cause notice then penalty is not imposable. Liberal view is taken once duty paid prior to issuance of SCN. I respectfully submit two fold submission.
First, the side note of Section 28 clearly state "Notice for payment of duties, interest etc." It states whether show cause notice to be issued or not. In normal period of six months demand, once duty is paid then no show cause notice to be issued. This section has a rider clause. This section is not applicable in the case of fraud etc. On the contrary, it is in "NON-OBSTANTE" nature. If suppression, this does not apply. The first Explanation Section 28(2)(B2) clearly takes away or carve out such advantage. It is reproduced below.
Explanation 1. - Nothing contained in this sub-section shall apply in a case where the duty was not levied or was not paid or the interest was not paid or was part paid or the duty or interest was erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the agent or employee of the importer or exporter.
28 Notice for payment of duties, interest etc. - (1) when any duty has not been levied or has been short levied or erroneously refunded, or when any interest payable has not been paid, part paid or erroneously refunded, the proper officer may,- (a) in the case of any import made by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, within one year.
from the relevant date, serve notice on the person chargeable with the duty or interest which has not been levied or charged or which has been so short levied or part paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.
Provided that where any duty has not been levied or has been short levied or the interest has not been charged or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the exporter or the agent or employee of the importer or exporter, the provisions of this sub-section shall have effect as if for the words "one year" and 'six months', the words 'five years' were substituted.
Explanation. - where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or six months or five years, as the case may be.
(2) The proper officer, after considering the representation, if any, made by the person on whom notice is served under Sub-section (1), shall determine the amount of duty or interest due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.
(2A) Where any notification has been served on a person under Sub-section (1), the properofficer,- (a) in case any duty has not been levied, or has been short levied, or the interest has not been paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts, where it is possible to do so, shall determine the amount of such duty or the interest, within a period of one year; and (b) in any other case, where it is possible to do so, shall determine the amount of duty which has not been levied or has been short levied or erroneously refunded or the interest payable which has not been paid, part paid or erroneously refunded, within a period of six months.
from the date of service of the notice on the person under Sub-section (1).
(2B) Where any duty has not been levied or has been short levied or erroneously refunded, or any interest payable has not been paid, part paid or erroneously refunded, the person, chargeable with the duty or the interest, may pay the amount of duty or interest before service of notice on him under Sub-section (1) in respect of the duty or the interest, as the case may be, and inform the proper officer of such payment in writing who, on receipt of such information, shall not serve any notice under Sub-section (1) in respect of the duty or the interest so paid: Provided that the proper officer may determine the amount of short payment of duty or interest, if any, which in his opinion has not been paid by such person and then, the proper officer shall proceed to recover such amount in the manner specified in this section and the period of one year or six months as the case may be, referred to in Sub-section (1) shall be counted from the date of receipt of such information of payment.
Explanation 1. - Nothing contained in this sub-section shall apply in a case where the duty was not levied or was not paid or the interest was not paid or was part paid or the duty or interest was erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer or the agent or employee of the importer or exporter.
Explanation 2. - For the removal of doubts, it is hereby declared that the interest under Section 28AB shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of duty, if any, as may be determined by the proper officer, but for this subsection.
(2C) The provisions of Sub-section (2B) shall not apply to any case where the duty or the interest had become payable or ought to have been paid before the date on which the Financial Bill, 2001 receives the assent of the President. (As proposed by the Budget, 2001).
(3) For the purposes of Sub-section (I), the expression 'relevant date' means- (a) In a case where duty is not levied, or interest is not charged, the date on which the proper officer makes an order for the clearance of the goods.
(b) In a case where duty is provisionally assessed under Section 18, the date of adjustment of duty after the final assessment thereof.
(c) In a case where duty or interest has been erroneously refunded, the date of refund; has force and cannot be rejected based on placing reliance on the Public Notice No. 34/2001/Cusv dated 22.11.2001 of Commissioner, Mangalore to the following effect.
The importers/exporters/CHAs/Steamer Agents are hereby informed that in Section 28 of the Customs Act, 1962, a new Sub-section (2)2B has been inserted by Section 103 of the Finance Act, 2001 (w.e.f.
11.5.2001) 1. Following this amendment, where any duty has not been levied or has been short levied or erroneously refunded, or any interest payable has not been paid, part paid or erroneously refunded, the person, chargeable with the duty or the interest, may pay the amount of duty or interest before service of notice on him and inform the Department of such payment in writing when the issue of show cause notice will be waived. If the amount so paid, voluntarily by the party does not cover the entire duty or interest as may be determined by the Department, action will be initiated to recover such amount in the manner specified in Section 28 of the Customs Act, 1962 and the period of one year or six months as the case may be, referred to in Sub-section (1) shall be counted from the date of receipt of such information of payment.
2. The above benefit shall not be available in a case where the duty was not levied or was not paid or interest was not paid or was part paid or the duty or interest was erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by the importer/exporter/agent. Further this provision shall also not apply to any case where the duty or interest had become payable or ought lo have been paid before the date on which the finance Act came into effect i.e. 11.5.2001.
is considered. The plea would not induce us to interpret Section 28(2)(2B) of the Customs Act, 1962, in any other manner than reading the plain language employed therein or in the manner as sought to interpreted by the ld. Commissioner in the Public Notice or pleaded by the DR.1.6 Proviso to Section 11A of Central Excise Act and 28(1) of the Customs Act, 1962 can be invoked when the conditions mentioned therein are available. However even if the conditions mentioned are available but the demand is within the normal period, a simplicitor demand can be issued without alleging or establishing the conditions to Section 11AC of Central Excise Act, 1944 or Section 114A of the Customs Act, 1962.
In such cases when ingredients of proviso clause need not be invoked there would be no question of penalty under Section 11AC or 114A. This would lead to a situation that demands of duty could be made, without penal consequences within the normal period even when such duty demands are consequent to an element of one or all ingredients of the proviso clause is present, if legislature intends so, then penalty under Section 11AC or 114A is not always required to be invoked and imposed.
Penalty under fiscal statutes is not a retributive impost.
1.7 As regards the Id. DR's plea of penalty being mandatory it is found that the full bench of Apex Court in the case of State of Madhya Pradesh v. Bharat Heavy Electricals 12. It is not necessary for us to decide whether the provision for levy of penalty equal to ten times the amount of entry tax would be confiscatory and, therefore, ultra vires since Mr. Sanghi, in fairness, submitted that the State treats it as the maximum limit and not fixed amount of penalty leaving no discretion for imposition of lesser penalty. This stand of the State itself concedes that the assessing authorities are not bound to levy fixed penalty equal to ten times the amount of entry tax whenever the provisions of Section 7(5) are attracted. Depending upon the facts of each case the assessing authority has to decide as to what would be the reasonable amount of penalty to be imposed, the maximum being ten times the amount of the entry tax. So construed, Sub-section (5) of Section 7 cannot be regarded as confiscatory. Consequently, this also cannot be a ground for holding Section 7(5) to be ultra vires.
13. From the aforesaid it follows that Section 7(5) has to be construed to mean that the presumption contained therein is rebuttable and secondly the penalty of ten times the amount of entry tax stipulated therein is only the maximum amount which could be levied and the assessing authority has the discretion to levy lesser amount, depending upon the facts and circumstances of each case.
Construing Section 7(5) in this manner the decision of the High Court that Section 7(5) in ultra vires cannot be sustained.
We therefore cannot find the provisions of Section 114A to be read as laying down a fixed amount of penalty. Nothing contrary to this decision has been shown. Applying this law, we do not uphold the plea of Mandatory penalty is to be always imposed.
1.8 The submissions of ld. DR to the following effect is considered. It was submitted- Hon'ble Supreme Court has held in the Revenue case that penalty is an additional tax. This is the view taken by the Apex Court in the case of C.A. Abraham v. Income Tax Officer Kottavam Apex Court concluded that "it is true that penalty proceedings under Section 28 are included in the expression "assessment" and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting Section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest.
In C.A. Abraham v. I.T.O. (supra) Hon'ble Court was concerned with the question whether the appellant before the Court who was carrying on business in foodgrains in partnership with another person was liable to penalty for submitting the returns of the income of the firm even after his partner's death. It was found that certain income of the firm was concealed and in Income Tax officers not only assessed the firm to tax for the suppressed income but also imposed penalty for concealing the same.
The expression "assessment" used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by Section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under Section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof. Nor has the expression, "all the provisions of chapter IV shall so far as may be apply to such assessment" a restricted content; in terms it says that all the provisions of chapter IV shall apply so far as may be to assessment of firms which have discontinued their business. By Section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assesseeLal Chand Gopal Das v. CIT 1963 (48) ITR 324 Allahabad High Court observed that there was no essential difference between tax and penalty because the liability for payment of both was imposed as a part of the machinery of assessment and the penalty was merely an additional tax imposed as a part of the machinery of assessment and the penalty was merely an additional tax imposed in certain circumstances on account of the assessee's conduct.
It may be seen that penalty is imposed as deterrent step or measure.
Parliament has considered each aspect and enacted with some purpose and objective such penal provision. Further Apex Court while interpreting has concluded that penalty is an additional tax.
Hence penalty imposed in the Custom Act under penal provision are in nature of additional tax. Therefore, I with utmost respect submit that paying duty prior to show cause notice issuance shall not emasculate the power or force of the law. Such act does not accrue right to declare the section otiose. Such interpretation will declare the law made by the parliament "Meaningless" "Superfluous" "Null" "Void". It will render it nugatory. The law becomes devoid of substance or force. Such interpretation is an "Abuse" of statute.
Torturing of statute emasculates these provisions and renders them ineffective as a weapon for combating menace or violators. This is inconsistent with the basic premise of law.
Haydon's case reported in 1584 (76) ER 637 shaped a rule of interpretation. Haydon's rule of interpretation or rule of purposive construction regard to subject and object also support the stand taken by the deptt. The principles laid down in the case of Haydon verbatim apply in the present case. The view on PRO PRIVOTO COMMODO and PRO BONO PUBLICO also extends support to Deptt's cause since deptt is representing public in general. Apex Court consistently followed Hayden's rule in the following judgments.Ambica Quarry v. Gujarat These submissions, cannot be accepted since penalty as envisaged under Section 114A is not mandatory, but are results of an exercise of discretion vested in the assessing authority as held by the Apex Court and is a liability to be imposed, only in such cases where compliance is not exhibited by the person liable. The imposition of penalty is not retributive in nature an eye for an eye or curative action.
1.9 Further the DR contends that the judgment of Machino Montell dealt with issue where there was no suppression & the Department failed to bring on record reasons for invocation of extended period; there are several decisions where Hon'ble Tribunal found elements of suppression; in such cases, Tribunal refused to accept the ratio of Machino Montell's decision & the mere fact that the assessee paid entire amount of duty, when the offence of clandestine removal was detected by Revenue, would not be sufficient so as to not to impose any penalty upon them, although the same may be a mitigating factor for reducing the quantum of penalty. The following decisions where duty was paid before SCN was issued but penalty was imposed and upheld by the Courts were cited.J.K. Pharma and Ors. and Shri Ramesh Patel v. CCE, Ahmedabad 2005 (102) ECC 406 (Tri-Mum.)Jasch Indus v. CCE, Delhi This plea will not induce us to bring out an automatic penalty liability under Section 114A of Customs Act, 1962, when short payments of duty have been complied even before the issue of a notice & determination. The plea that penalty is required and prescribed by legislature to be as a regulatory measure or deterrent from doing or not doing an particular act which is undesirable by law would however be on a separate footing. The Custom Act is not only Revenue raising enactment but is also a regulatory enactment, therefore penalties under Sections 112 or 114, 116 of the Customs Act consequent to regulatory enforcement could be arrived at even if duties were discharged or not discharged on or before a notice was issued, since such penalties arise, from a liability of violation of a prohibition regulation etc.
by the goods or the importer/abettor and may not necessarily result of in duty implications penalty in such cases could be upheld as imposition of penalty under these section, cannot be only to be related to duty evasion.
2.1 In view of the findings hereinabove we would answer the reference as follows: There is no reason to differ with the findings of the L.B. in case of Machino Montell & uphold the penal consequences of Section 114A when duty short paid are deposited before the issue of a show cause notice. However, penal consequences liability emerging from other provisions of Customs Act, 1962 can be separately attracted, on the facts of each case.
3.1 The matter may now be sent back to the referring bench to decide the appeal.