CCE v. Bolpur Ratan Melting and Wire Industries, 2008
TIOL 194 SC-CX-CB :
(i) In this case, a Bench of three Judges of the Supreme
Court made a reference to a Larger Bench whereby observations made in the
decision of the Supreme Court in the case of Dhiren Chemical Industries, 2002
(2) SCC 127 were referred to be clarified, since the decision in the case of
Dhiren Chemicals (supra) was given by a Bench of five judges, it was
considered appropriate that a Bench of similar strength hands down an
authoritative pronouncement.
(ii) Background :
In the case of Dhiren Chemicals (supra), the decision
of the Supreme Court in the case of Usha Martin Industries 1997 (7) SCC 477 was
overruled based on an interpretation of a particular phrase whereby benefit of
exemption notification was denied, however, as per Board’s clarification,
exemption was granted. However, during the hearing of case of Dhiren Chemicals,
it was pointed out that based on the Board’s Circular, benefit of exemption
notification was granted to many cases. These were likely to be reopened if
interpretation in the case of Dhiren Chemicals was to be followed. Therefore,
para in the judgment of Dhiren Chemicals (para 11 in SCC) included a para as
follows :
“We need to
make it clear that regardless of the interpretation that we have placed on the
said phrase, if there are Circulars which have been issued by the Central
Board of Excise and Customs which place a different interpretation upon the
said phrase, that interpretation will be binding upon the Revenue.”
This was done to ensure to bind the Department wherever
exemption benefit was granted.
(iii) The counsel for the assessee laid stress on the binding
nature of Circulars qua the revenue authorities and argued that even if a
circular ran counter to the decision of Supreme Court, the Revenue was bound by
the circular and it could not take advantage of the Supreme Court’s decision. It
was also contended that once a Circular was brought to the notice of the Court,
the Revenue’s appeal based on the ground contrary to the Circular should be
turned down.
(iv) The Apex Court in the instant case observed that while
Circulars issued by the Board are undoubtedly binding on the authorities under
the respective statutes, the law declared by the Supreme Court would be binding
in terms of Article 141 of the Constitution and as such, Circular cannot prevail
once Supreme Court order to deny appeal to the Revenue and lay content with the
Circular would mean that there is no scope for adjudication by the High Court or
Supreme Court and this would be against the concept of majesty of law of the
Supreme Court. The appeal by the Revenue was allowed.
2. Penalty u/s.11AC of the Central Excise Act : Whether
mandatory ?
Supreme Court : Larger Bench :
Union of India v. Dharmendra Textile Processors, 2008
(231) 3 ELT (SC)
(i) Background :
The Division Bench of the Supreme Court referred the
controversy involved in several appeals to a Larger Bench to examine whether the
view expressed in Dilip N. Shroff v. Joint Commissioner of Income-tax,
Mumbai, 2007 (219) ELT 15 (SC) was correct. The issue involved related to
whether mens rea was an essential ingredient for penalty leviable
u/s.11AC of the Central Excise Act, 1994, and whether or not there was a scope
for levying penalty below the prescribed minimum. The Revenue contended that
there was no discretion with the authority in the matter of imposition of
penalty and they were duty bound to impose penalty equal to the duty determined
or payable. The assessee’s contention was that it was open for the authority not
to impose any penalty, as the basic scheme of the said S. 11AC was identical to
one u/s.271(1)© of the Income-tax Act and in the given case, it was open to
the Assessing Officer not to impose penalty. The Division Bench held the view
that correct position in law was laid down in Chairman, SEBI v. Shriram
Mutual Fund & Anr., 2006 (5) SCC (361). Hence, the matter was referred to a
Larger Bench.
(ii) The Division Bench also made reference to Rule 96ZQ and
Rule 96ZO of the Central Excise Rules, 1944. It was noted that in some cases,
the assessee challenged vires of Rule 96ZQ(5) and the Gujarat High Court held
that the said Rule incorporated the requirement of mens rea. The Division
Bench stated that even if Larger Bench took a view that penalty under this
clause was mandatory, it was open for an assessee to challenge vires of Rule
96ZQ(5). Further, it was also agreed that similar issue was involved in Rule
96ZO. However, the Additional Solicitor General submitted that in Rules 96ZQ and
96ZO, there was no reference to any mens rea as in S. 11AC where mens
rea was prescribed statutorily. This was evident from the fact that extended
period of limitation was permissible u/s.11A of the Act. In essence, it was
contended that penalty was for statutory offence and it was observed that
proviso to S. 11A provided the time for initiation of action, whereas S. 11AC
meant only a mechanism for computation and the quantity of penalty. Thus the
onus lay on the Revenue to establish that extended period is applicable and on
crossing this hurdle, the assessee is exposed to penalty and the quantum is
already fixed. It was also observed that in the statutes where mens rea
exists, if any penalty limit or a maximum penalty, etc. is prescribed, it is to
be levied in accordance with the said limits, but if no variable is provided, no
discretion exists.
iii) On the other hand, on behalf of appellants, reference of SC’s decision in case of State of MP & Ors. v. Bharat Heavy Electricals, 1997 (7)SCC 1 was made to contend that even if the Court held that imposition of penalty was mandatory, yet there was a scope for exercise of discretion. It was further submitted that various degrees of culpability cannot be on the same footing and S. llAC could be con-strued in a manner by reading into it the discretion and that was considered a proper way of giving effect to statutory intention.
iv) Relevant provision of each of S. llAC, Rule 96ZQ, Rule 96Z0 and also of S. 271(1)(c) of the IT Act were gone into. Further, observations made in Chairman SEBI’s case were also gone into at length and it was contended that a specific Section in the SEBIAct viz. S. 24 dealt with criminal offences under the Act and its punishment. Therefore, penalty leviable under Chapter VIA of the said Act was neither criminal nor quasi-criminal, but related to breach of civil obligation i.e., default or failure of statutory obligation and as such, mens rea by the appellant was not required. A catena of decisions were gone into where it was held that mens rea was not an essential foundation for imposing penalty for breach of civil obligations.
v) The Court further observed that the decision of Bharat Heavy Electricals’ case (supra) was not of assistance to the assessee, as the same proceeded on the basis of concessions and even otherwise, it was not open to the Bench to read into a statute which was specific and clear, something which was not specifically provided. The Bench further observed, “The statute is an edict of the Legislature. The language employed in a statute is the determinative factor of legislative intent”. The Court cited observations of many decisions on similar issues which inter alia included, “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 the Act of Parliament unless clear reason for it is found within the four corners of the Act itself. (Per Lord Loreburn, L’C, in Vickers Sons)”. The Court at the end stated “it is of significance to note that conceptual and contextual difference between S. 271(1)(c) of the IT Act was lost sight of in Dilip Shroff’s case (supra).
vi) The explanations appended in S. 271(1)(c) entirely indicate the element of strict liability on the assessee for concealment or for providing inaccurate particulars while, filing the return. The penalty under that provision is a civil liability. The Section read with the explanations indicates that the said Section has been enacted to provide for a remedy for loss of revenue and willful concealment is not an essential ingredient to attract a civil liability as in the case of prosecution u/ s.276C of the IT Act. Accordingly it was ruled that penalty u/s.llAC of the Act was mandatory.
3. CENVAT Credit whether admissible on outdoor caterer’s service in canteen of a manufacturer:
Larger Bench decision:
CCE Mumbai 5 v. GTC Industries Ltd., 2008 (12) STR (Tri.LB)
i) The issue in the instant case relates to whether or not service of an outdoor caterer provided in the canteen of a manufacturer be considered ‘input service’ within the meaning of the definition of input service under Rule 2(1) of the CENVAT Credit Rules, 2004. The definition contains two parts – the first being the definition of input service and the second part is an inclusive clause listing various services. The Revenue contended that the inclusive clause is limited only to services enumerated in the said clause and since the disputed service i.e., out-door catering service is not one of them, it will not qualify as an input service.
ii) The appellant’s contention on the other hand was that the term ‘includes’ enhances the scope of the definition and therefore, a restrictive approach cannot be adopted. The appellant also contended that the words in the definition ‘activities relating to business’ were followed by the words ‘such as’ which was further followed by a list of services. Thus, the term ‘such as’ was used to provide only an illustrative list of services and not exhaustive. Any activity that related to business could form part of the expression ‘input service’.
(iii) The appellant also discussed an extract of press note dated August 12, 2004 along with the draft rules issued by the Ministry of Finance prior to introduction of CENVAT Credit Rules, 2004 which provided indication of the object of the Legislature. The notified rules expanded the scope of the draft rules by including the activities such as coaching and training, computer networking, credit rating, share registry and security, etc. In view of this, the appellant submitted that the argument of the Department that the scope of the definition was restricted to the services specified in the inclusive part of the definition was incorrect inasmuch as the scope of the term ‘activities relating to business’ was expanded and illustrated further when the rules were notified. Thus, the Legislature intended to allow credit on all such services which were activities relating to business. It was also argued that Service Tax being a value added tax and a consumption tax, it essentially formed part of the value of the goods
services, the credit of which could not be denied.
iv) In support of the above, para 4.1 of CAS-4 was referred to, which defined ‘cost of production’, and under the head ‘direct wages and salaries’ subsidised food is considered as part of direct wages and salaries being fringe benefits. It was also noted by the Tribunal that it was mandatory on part of the factories to provide canteen facility and failure of which attracts prosecution and penalty u/s.92 of the Factories Act, 1948. Service Tax on outdoor catering service is paid by the manufacturer for running the canteen, irrespective of the fact whether subsidised food is provided or not. Since this cost has bearing on the cost of production, it was held that catering services have to be considered as an input service relating to the business and CENVAT credit in respect thereof would be admissible. The view of the Tribunal expressed in the case of Victor Gaskets India Ltd. & Others, 2008 (10) STR 369 was accordingly approved.
