IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN MONDAY, THE 4TH FEBRUARY 2008 / 15TH MAGHA 1929 OP.No. 20283 of 2002(M) ---------------------------------- PETITIONER: ------------------- SANCE PHARMACEUTICALS, P.B.NO.49, ETTUMANOOR, KOTTTAYAM-686 631, REPRESENTED BY ITS PARTNER, SRI.MANOJ JOSEPH. BY ADV. SRI.V.M.KURIAN SRI.A.V.THOMAS SRI.MATHEW B. KURIAN SRI.K.T.THOMAS RESPONDENTS: ----------------------- 1. THE SUPERINTENDENT OF CENTRAL EXCISE, OFFICE OF THE SUPERINTENDENT OF CENTRAL EXCISE, ETTUMANOOR RANGE, ETTUMANOOR. 2. THE DEPUTY COMMISSIONER OF CENTRAL EXCISE, KOTTAYAM DIVISION, CMS COLLEGE ROAD, KOTTYAM - 686 001. 3. THE COMMISSIONER OF CUSTOMS & CENTRAL EXCISE (APPEALS), CR BUILDING, I.S. PRESS ROAD, COCHIN-682 018. BY ADV. SRI.SAJEESH.K.B., ADDL.CGSC SRI.JOHN VARGHESE, ASSISTANT SG SRI.P.PARAMESWARAN NAIR,ASST.SG THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON184/01/2008, THE COURT ON 04/02/2008 DELIVERED THE FOLLOWING: OP. NO.20283/2002 ORDER ON CMP. NO.34753/2002 IN OP. NO.20283/2002 DISMISSED 04.02.2008 SD/- P.N.RAVINDRAN , JUDGE APPENDIX PETITIONERS EXHIBITS EXT.P1:- COPY OF THE SHOWCAUSE NOTICE NO.1/2000 DT. 13.4.2000 ISSUED BY THE IST RESPONDENT. EXT.P2:- COPY OF THE REPLY LETER DT. 2.6.2000 SENT BY THE PETITIONER. EXT.P3:- COPY OF THE ORDER NO.137/2000 DT. 28.3.2000 ISSUED BY 2ND RESPONDENT EXT.P4:- COPY OF THE ORDER IN APPEAL NO.427/2002 DT. 14.6.02 ISSUED BY THE 3RD RESPONDENT. /TRUE COPY/ P.A. TO JUDGE tss P.N.Ravindran, J. ============== O.P.No.20283 of 2002 =============== Dated this the 4th day of February, 2008. JUDGMENT The petitioner firm, a manufacturer of pharmaceutical products, challenges Ext.P3 order passed by the Deputy Commissioner of Central Excise, Kottayam Division levying penalty under Rule 173GG of the Central Excise Rules, 1944 (hereinafter referred to as "the rules") and Ext.P4 appellate order passed by the Commissioner of Customs and Central Excise (Appeals), Cochin rejecting the appeal filed by the petitioner against Ext.P3. The petitioner has also prayed for a writ in the nature of mandamus restraining the second respondent - the Deputy Commissioner of Central Excise, Kottayam Division from levying penalty on the petitioner under Rule 173 GG of the rules after 1.4.2000. The brief facts necessary for the disposal of this original petition are as follows: 2. During the year 1999-2000 the petitioner firm was OP 20283/02 -: 2 :- enjoying concessional rate of excise duty in terms of Notification No.9/99 dated 28.2.1999. The petitioner firm had also availed the facility of monthly payment of excise duty under Rule 173GG. As per of Notification No.9/99 dated 28.2.1999, the petitioner firm had to pay excise duty at the rate of 4.8% upto the first clearance value of Rs.50 lakhs and at 6.4% for the next clearance value of Rs.50 lakhs. As per the returns furnished by the petitioner firm, its turnover for the quarter ending on 30.9.1999 was Rs.46,93,716/. The petitioner firm had paid excise duty at the concessional rate of 4.8% on the said amount. On the terms of the notification referred to above, the petitioner firm was entitled to concessional rate of duty at the rate of 4.8% only for clearances upto the value of Rs.50 lakhs in every financial year. In the returns filed by the petitioner firm for the quarter beginning from 1.10.1999 and ending with 31.12.1999, for the month of October, 1999 the petitioner firm had availed concessional rate of duty at 4.8% on clearances of the aggregate value of Rs.5,76,131/- as against the eligible limit of Rs.3,06,284/- (Rs.50,00,000 - Rs.46,93,716) The petitioner firm had during October, 1999 cleared goods worth Rs.2,69,847/- by OP 20283/02 -: 3 :- paying duty at 4.8% instead of at 6.4%. There was thus a short payment of Rs.4,318/- in the excise duty paid by the petitioner firm during the month of October, 1999. Under Rule 173GG of the rules, the returns for a particular month had to be filed before the 15th of the succeeding calendar month along with the excise duty payable on the clearances declared therein. On realising that there was short payment of excise duty to the tune of Rs.4,318/-, the petitioner firm paid the difference in the duty by remitting the sum of Rs.4,960/- consisting of Rs.4,509/- remitted towards duty on 1.3.2000 and Rs.451/- remitted towards interest on 15.3.2000 at the normal rate. 3. Rule 173GG of the rules reads as follows: " 173GG. Special procedure for monthly payment of duty by certain manufacturers:- (1) Notwithstanding anything contained in Rule 173G in regard to payment of duty on each consignment, a manufacturer availing of the exemption under a notification based on value of clearances in a financial year may discharge his duty liability on a monthly basis by debiting the account-current maintained under Rule 173G or account in Form RG 23A Part -II prescribed in Rule 57G or account in Form RG 23C OP 20283/02 -: 4 :- Part-II prescribed in Rule 57T or all the said accounts, as the case may be, in the manner specified below: (a) . . . . . . . . (b) . . . . . . . . (c) . . . . . . . . (d) . . . . . . . . (e) . . . . . . . . (2) . . . . . . . (3) If the manufacturer fails to pay the amount of duty payable for a calendar month by the fifteenth of the succeeding calendar month, he shall be liable to pay the outstanding amount along with interest at the rate of twenty four per cent annum on the outstanding amount, for the period starting with the 16th day of the succeeding month till the date of actual payment of the outstanding amount, together with a penalty of five hundred rupees per day for the aforesaid period:" Rule 173GG deleted with effect from 1.4.2000. 4. The first respondent, the Superintendant of Central Excise, Ettumanoor Range thereafter issued Ext.P1 show cause notice dated 13.4.2000 calling upon the petitioner to show cause why the sum of Rs.4,318/- (difference in the excise duty) should not be demanded with interest at the rate of 30% per annum OP 20283/02 -: 5 :- under Rule 173GG (3) of the rules and if already paid should not be adjusted towards the above dues and also show cause why the penalty should not be imposed on the petitioner at the rate of Rs.500/- per day from 16.11.1999 to 28.2.2000, i.e., from the due date to the actual payment date. On receipt of Ext.P1 notice, the petitioner firm submitted Ext.P2 reply pointing out that the short payment of duty to the tune of Rs.4,318/- was due to a clerical error in computing the aggregate value of the clearances and that immediately on noticing the mistake, the petitioner firm had voluntarily paid the difference in the duty and also the interest on 1.3.2000 and 15.3.2000 respectively. The petitioner firm also pointed out that there was no willful attempt to postpone the payment of duty so as to get undue financial accommodation and that the petitioner firm has not willfully made short payment. The petitioner firm requested the second respondent to take a lenient view and to drop the proceedings. By Ext.P3 order passed on 28.8.2000, the second respondent held that the assessee cannot escape from penalty, which is statutorily stipulated and levied a penalty of Rs.53,000/- on the petitioner firm under Rule 173GG(3) of the rules. OP 20283/02 -: 6 :- 5. The petitioner firm challenged Ext.P3 in appeal before the Commissioner of Central Excise, Cochin. The appellate authority noticed that the short payment of duty was unintentional and that the petitioner firm had remitted it along with interest. The appellate authority also noticed that penalty cannot be imposted in the absence of mens-rea. However, on the short ground that the adjudicating authority had no option under Rule 173GG of the rules, except to levy penalty, the appellate authority upheld the order passed by the Deputy Commissioner of Central Excise, Kottayam Division and by Ext.P4 order passed on 14.6.2002 rejected the appeal filed by the petitioner firm. The said orders are under challenge in this original petition. 6. The second respondent in the original petition has sworn to a counter affidavit reiterating the stand taken by the third respondent in Ext.P4. It is contended that though Rule 173GG was deleted with effect from 1.4.2000, the violation occurred during October/November, 1999 when the rule was in force and hence, the proceedings for the levy of penalty was validly initiated and concluded against the petitioner firm. It is further contended that levy of penalty is mandatory under Rule 173GG OP 20283/02 -: 7 :- and once short payment of duty is admitted, penalty is attracted. 7. I have heard Sri.K.T.Thomas, the learned counsel appearing for the petitioner. Though the respondents have entered appearance through counsel and filed a counter affidavit, there was no representation on behalf of the respondents. 8. The learned counsel for the petitioner submitted that Ext.P1 notice was issued after Rule 173GG was deleted with effect from 1.4.2000 and hence, the issue of show cause notice and the levy of penalty are without jurisdiction. The learned counsel also submitted that admittedly, there was no dishonest intention on the part of the petitioner to evade payment of excise duty and hence, the levy of penalty was illegal. The learned counsel for the petitioner further submitted that in as much as the petitioner had voluntarily paid the short fall in the excise duty along with interest well before the show cause notice was issued and as the appellate authority had in Ext.P4, noticed that the short payment was unintentional and there was no mens-rea on the part of the petitioner, Exts.P3 and P4 orders are liable to be set aside. In support of the said contention, the learned counsel placed reliance on the decisions of the Apex Court in Hindustan OP 20283/02 -: 8 :- Steel Ltd. v. The State of Orissa - A.I.R. 1970 S.C. 253, The Cement Marketing Co. of India v. The Asstt. Commissioner of Sales Tax, Indore & Others and the decision of a Division Bench of this court in W.A.No.531 of 2005. 9. I shall now deal with the first contention of the petitioner that since Ext.P1 notice was issued on 13.4.2000 after Rule 173GG was deleted on 1.4.2000, the issue of show cause notice and levy of penalty are illegal and without jurisdiction. It is settled law that in the absence of a contrary intention, the rights acquired or accrued or the liabilities incurred or any penalty, forfeiture or punishment incurred during the operation of a law are kept alive even in the absence of a saving clause in the repealing provision. The petitioner has not placed before me the notification whereby Rule 173GG was deleted with effect from 1.4.2000. No material has been made available to establish that the notification repealing Rule 173GG did not aim to preserve the liabilities or penalty incurred while the rule was in force. A legal proceeding for enforcing the rights acquired or accrued or liabilities, penalty, forfeiture or punishment incurred are saved notwithstanding the repeal of an enactment, though the OP 20283/02 -: 9 :- proceedings for acquisition of a right are not thus saved (vide A.I.R. 1993 S.C.1188). In the absence of a contrary intention, the right to initiate legal proceedings for violation of Rule 173GG would thus remain unaffected. I therefore hold that there is no merit in the challenge to the show cause notice or to Exts.P3 ands P4 on the ground that they were issued after Rule 173GG ceased to be in force. 10. I shall now deal with the contention of the petitioner that in the absence of mens-rea, penalty could not have been levied on the petitioner. The appellate authority has in Ext.P4 noticed that short payment of excise duty was unintentional and that the petitioner had remitted it voluntarily along with interest well before Ext.P1 show cause notice was issued. The appellate authority had also noticed that penalty cannot be imposed in the absence of mens-rea and that except in cases where there is sufficient evidence to establish mens-rea, penalty cannot be imposed. The Apex Court has, in Hindustan Steel Ltd. v. The State of Orissa - A.I.R. 1970 S.C. 253, while considering the provisions governing the levy of penalty in the Orissa Sales Tax Act, held as follows: OP 20283/02 -: 10 :- "But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi- criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute." In the decision in The Cement Marketing Co. of India v. The Asstt. Commissioner of Sales Tax, Indore & Others - A.I.R. 1980 S.C. 346 while considering the provisions governing the levy of penalty under the M.P. General Sales Tax Act, the Apex OP 20283/02 -: 11 :- Court held thus: "What Section 43 of the Madhya Pradesh General Sales Tax Act, 1958 requires is that the assessee should have filed a 'false' return and a return cannot be said to be 'false' unless there is an element of deliberateness in it. It is possible that even where the incorrectness of the return is claimed to be due to want of care on the part of the assessee and there is no reasonable explanation forthcoming from the assessee for such want of care, the Court may in a given case, infer deliberations and the return may be liable to be branded as a false return. But where the assessee does not include a particular item in the taxable turnover under a bona fide belief that he is not liable so to include it, it would not be right to condemn the return as a 'false' return inviting imposition of penalty. This view which is being taken by us is supported by the decision of this Court in Hindustan Steel Limited v. State of Orissa (1970) 25 STC 211), where it has been held that "even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner OP 20283/02 -: 12 :- prescribed by the statute ...." It is elementary that Section 43 of the Madhya Pradesh General Sales Tax Act, 1958 providing for imposition of penalty is penal in character and unless the filing of an inaccurate return is accompanied by a guilty mind, the section cannot be invoked for imposing penalty. If the view canvassed on behalf of the Revenue were accepted, the result would be that even if the assessee raises a bona fide contention that a particular item is not liable to be included in the taxable turnover, he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable. That surely could never have been intended by the Legislature." A Division Bench of this Court has, in W.A.No.531 of 2005, held that unless there is a deliberate intention to defy the law or orders or there is disregard of the obligation under the Kerala General Sales Tax Act, penalty cannot be imposed. 11. The authoritative pronouncements of the Apex Court and of this Court, are to the effect that even in cases where mere failure to perform the statutory obligation would result in levy of OP 20283/02 -: 13 :- penalty and even if a minimum penalty is prescribed, the authority competent to impose penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. In the case on hand, the appellate authority has in Ext.P4, noticed that the short payment of duty was unintentional and that the petitioner had remitted the difference in duty along with interest well before the show cause notice was issued. The appellate authority had also noticed that penalty cannot be imposed in the absence of evidence to establish mens-rea. However, on the short ground that Rule 173GG(3) mandates the adjudicating authority to impose penalty, Ext.P3 order was upheld. The original and the appellate authority did not apply the principles laid down by the Apex Court in the aforesaid decisions that even though a minimum penalty is prescribed, the adjudicating authority can refuse to levy penalty, having regard to the conduct of the parties and the fact that there was no mens-rea on the side of the party. 12. Applying the principles laid down by the Apex Court and OP 20283/02 -: 14 :- this Court in the decisions referred to above and taking note of the fact that the petitioner firm had made good the short payment of excise duty to the tune of Rs.4,318/- by voluntarily remitting it along with interest even before Ext.P1 show cause notice was issued, it can safely be held that the short payment of duty was unintentional and not deliberate. The respondents have also noticed that there was no dishonest intention on the part of the petitioner firm in not remitting the duty in full. The original and the appellate authority however imposed penalty on the short ground that it was mandatory under Rule 173GG(3) to impose penalty at the rate of Rs.500/- per day of default. In the light of the finding of the appellate authority that there was no dishonest intention on the part of the petitioner firm to evade payment of excise duty and in view of the fact that the petitioner firm had made good the short fall in excise duty even before Ext.P1 show cause notice was issued and in the absence of any such previous conduct on the side of the petitioner firm, I am of the opinion that the appellate authority erred in upholding the levy of penalty by the original authority only on the short ground that Rule 173GG mandated them to impose penalty. The reasons OP 20283/02 -: 15 :- given by respondents 2 and 3 in Exts.P3 and P4 to impose penalty on the petitioner firm cannot be sustained in the light of the authoritative pronouncements of the Apex Court and of this Court referred to above. Exts.P3 and P4 are therefore unsustainable in law and are liable to be quashed. Accordingly, Exts.P3 and P4 are quashed. The Original Petition is allowed as above. No costs. P.N.Ravindran, Judge. ess 30/1