No discretion to reduce penalty under Section 11AC: SC Larger Bench
AIT News Network.
NEW DELHI. Larger Bench of Supreme Court vide AIT-2008-363-SC has ruled that Section 11AC of the Central Excise Act, 1944 inserted by Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of tax should not be read to contain mens rea as an essential ingredient and there is no scope for levying penalty below the prescribed minimum.
The Explanations appended to Section 272(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 Dilp N. Shroof's case AIT-2007-204-SC has not considered the effect and relevance of Section 276C of the I.T. Act. Object behind enactment of Section 271 (1)(e) 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. Willful 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.
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 AIT-2007-204-SCwas not correctly decided but Chairman, SEBI's case has analysed the legal position in the correct perspectives.
A Division Bench of Supreme Court 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. AIT-2007-204-SC. The question which arose for determination in all these appeals was whether Section 11AC of the Central Excise Act, 1944 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 SC 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 and not in Dilip Shroff's case. Therefore, the matter was referred to a larger Bench.
