UNION OF INDIA Vs. DHARAMENDARA TEXTILE PROCESSORS

JUDGEMENT

(1.) Leave granted in the special leave petitions.

(2.) A Division Bench of this Court has referred the controversy involved in these appeals to a larger Bench doubting the correctness of the view expressed in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Anr. 2007 (8) SCALE 304. The question which arises for determination in all these appeals is whether Section 11AC of the Central Excise Act, 1944 (in short the Act ) inserted by Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income Tax Act, 1961 (in short the IT Act ) taking the stand that Section 11AC of the Act is identically worded and in a given case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules, 1944 (in short the Rules ) and a decision of this Court in Chairman, SEBI v. Shriram Mutual Fund and Anr. and was of the view that the basic scheme for imposition of penalty under Section 271(1)(c) of IT Act, Section 11AC of the Act and Rule 96ZQ(5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI s case (supra) and not in Dilip Shroff s case (supra). Therefore, the matter was referred to a larger Bench.

(3.) 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).