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Penalty under 11AC

Court :
Supreme Court

Brief :
Revenue wins major battle in Apex Court; Central Excise - Mandatory Penalty - Section 11AC - No discretion to reduce penalty; Income Tax - Sec 271(1)(c) - penalty is civil liability and wilful concealment is not essential ingredient for attracting civil liability like in case of prosecution u/s 276C

Citation :

Revenue wins major battle in Apex Court; Central Excise - Mandatory Penalty - Section 11AC - No discretion to reduce penalty; Income Tax - Sec 271(1)(c) - penalty is civil liability and wilful concealment is not essential ingredient for attracting civil liability like in case of prosecution u/s 276C: Supreme Court Larger Bench NEW DELHI, OCT 16, 2008 : A Division Bench of the Supreme Court had in UNION OF INDIA & ORS Vs M/s DHARAMENDRA TEXTILE PROCESSORS & ORS - 2007-TIOL-159- SC-CXreferred the controversy involved in these appeals to a larger Bench doubting the correctness of the view expressed in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. (2007-TIOL-96- SC-IT). The question which arises for determination in all these appeals is whether Section 11AC of the Central Excise Act inserted by Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income Tax Act, 1961 taking the stand that Section 11AC of the Act is identically worded and in a given case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules, 1944 and a decision of the Supreme Court in Chairman, SEBI v. Shriram Mutual Fund and Anr. (2006-TIOL-72- SC- SEBI) and was of the view that the basic scheme for imposition of penalty under Section 271 (1)(c) of IT Act, Section 11AC of the Act and Rule 96ZQ(5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI's case and not in Dilip Shroff's case. Therefore, the matter was referred to a larger Bench. It was noted that in some cases the assessee had challenged the vires of Rule 96ZQ(5) and the Gujarat High Court held that the said rule incorporated the requirement of mens rea. The Division Bench clarified that if the larger bench takes a view to say that the penalty leviable under the said clause is mandatory, it is still open to the assessee to challenge the vires of Rule 96ZQ(5). During the course of hearing, counsel for the parties agreed that a similar issue is involved in respect of Rule 96ZO. The Supreme Court Larger Bench observed, In Chairman SEBI's case, reference was made to the statutory scheme. It was noted that the penalty was mandatory. It was pointed out that there was a scheme attracting imposition of penalty. With reference to a statute relating to breach of civil obligation, Section 9 of the Act in that case related to criminal proceedings. The decision in Bharat Heavy Electricals' s case cannot be of any assistance to the assessee because the same proceeded on the basis of concession. Even otherwise, it was not open to the Bench to read, into a statute which was specific and clear, something which is not specifically provided for in the statute. The stand of counsel for the assessee is that the absence of specific reference to mens rea is a case of casus omissus. If the contention of learned counsel for the assessee is accepted that the use of the expression "assessee shall be liable" proves the existence of discretion, it would lead to a very absurd result. In fact in the same provision there is an expression used i.e. "liability to pay duty". It can by no stretch of imagination be said that the adjudicating authority has even a discretion to levy duty less than what is legally and statutorily leviable. Most of cases relied upon by learned counsel for the assessee had their foundation on Bharat Heavy Electrical's case. As noted above, the same is based on concession and in any event did not indicate the correct position in law. The Supreme Court emphasised, "It is a well-settled principle in law that the court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. Similar is the position for conditions stipulated in advertisements. " - [Any clue as to the relevance of advertisements here?] The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner, the courts cannot aid the legislature' s defective phrasing of an Act, they cannot add or mend, and by construction make up deficiencies which are left there. It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. Rules of interpretation do not permit the courts to do so, unless the provision as it stands is meaningless or of doubtful meaning. The courts are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself. The question is not what may be supposed and has been intended but what has been said. "Statutes should be construed not as theorems of Euclid", Judge Learned Hand said, "but words must be construed with some imagination of the purposes which lie behind them". In D.R. Venkatachalam v. Dy. Transport Commr., it was observed that the courts must avoid the danger of a priori determination of the meaning of a provision based on their own preconceived notions of ideological structure or scheme into which the provision to be interpreted is somewhat fitted. They are not entitled to usurp legislative function under the disguise of interpretation. While interpreting a provision the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary. Two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole, appear to be well settled. Under the first principle a casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature. "An intention to produce an unreasonable result", said Danckwerts, L.J. "is not to be imputed to a statute if there is some other construction available". "When the words of a law extend not to an inconvenience rarely happening, but due to those which often happen, it is good reason not to strain the words further than they reach, by saying it is casus omissus, and that the law intended quae frequentius accidunt." "But", on the other hand, "it is no reason, when the words of a law do enough extend to an inconvenience seldom happening, that they should not extend to it as well as if it happened more frequently, because it happens but seldom". A casus omissus ought not to be created by interpretation, save in some case of strong necessity. Where, however, a casus omissus does really occur, either through the inadvertence of the legislature, or on the principle quod enim semel aut bis existit praetereunt legislatores, the rule is that the particular case, thus left unprovided for, must be disposed of according to the law as it existed before such statute - casus omissus et oblivioni datus dispositioni communis juris relinquitur; "a casus omissus", observed Buller, J. in Jones v. Smart 1785 (1) TR 44:99 ER 963 (ER p. 967) "can in no case be supplied by a court of law, for that would be to make laws". The principles were examined in detail in Maulavi Hussein Haji Abraham Umarji v. State of Gujarat (2004 (6) SCC 672). The grammatical and ordinary sense of the words is to be adhered to unless that would lead to some absurdity or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid that absurdity and inconsistency, but no further. The Supreme Court LB found it of significance to note that the conceptual and contextual difference between Section 271(1) (c) and Section 276C of the IT Act was lost sight of in Dilip Shroff's case. The Explanations appended to Section 271(1)(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shrof's case has not considered the effect and relevance of Section 276C of the I.T. Act. Object behind enactment of Section 271 (1)(c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the I.T. Act. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget, reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given. So the Supreme Court held, "Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff's case was not correctly decided but Chairman, SEBI's case has analysed the legal position in the correct perspectives. The reference is answered.

CA V. Mohanakrishnan
on 21 October 2008
Published in Excise
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