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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3397 OF 2003

UNION OF INDIA & OTHERS ...APPELLANT (S)

VERSUS

M/S KRISHNA PROCESSORS & ANR. ...RESPONDENT(S)

WITH

CIVIL APPEAL NOS. 3398-3399 OF 2003 CIVIL APPEAL NO. 4096 OF 2004 CIVIL APPEAL NO. 3388 OF 2006 CIVIL APPEAL NO. 5277 OF 2006 CIVIL APPEAL NO. 675 OF 2007 CIVIL APPEAL NO. 1420 OF 2007 CIVIL APPEAL NO. 4316 OF 2007 CIVIL APPEAL NO. 4317 OF 2007 CIVIL APPEAL NO. 5931 OF 2008

O R D E R

Before  the  Gujarat  High  Court,  Ambuja  Synthetics  Mills  (assessee)  had  

challenged the validity of Rule 96ZQ(5)(ii), which reads as under:

“Rule 96ZQ(5)(ii):  

(5) If an independent processor fails to pay the amount of duty by  

the date specified in sub-rule (3) he shall be liable to:-

(i)......

(ii) a penalty equal to an amount of duty outstanding from him at  

the end of such month or rupees five thousand, whichever is greater.”

As can be seen from the above quoted impugned sub-rule, penalty equal to an

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amount outstanding at the end of the stipulated period was leviable.  The impugned Rule  

was challenged as ultra vires the Constitution and beyond the legislative competence of the  

Rule making authority.  By judgment in the case of Ambuja Synsthetic Mills Vs. Union of  

India reported in 2004 175 ELT 85, the Gujarat High Court read down the Rule holding  

that `it was not mandatory'.  We quote hereinbelow Para 9 of the said judgment which  

reads as under:

“In our view, there is no reason as to why same analogy should not  

be applied in the instant case also.  The Apex Court in the above decision has  

also pointed out that the  Section should be read as containing a rebuttable  

presumption  and  clarifying  the  position,  the  Apex  Court  observed  in  

paragraph 11 as under:-

“.......This  would  mean that  it  will  be  open to  the  registered dealer to satisfy the authorities concerned that the  non-submission of the statement under sub-sections (1) and (2)  of Section 7 was not with the intention to facilitate the evasion  of the entry tax.  In other words, sub-section (5) of Section 7  places the burden of  proof  on the registered dealer to show  that the non-submission of the statement under sub-sections (1)  and (2) of Section 7 was not with a view to facilitate the evasion  of entry tax.”

The Apex Court pointed out that, “if a registered dealer is unable  

to satisfy the authorities in this regard then, in the absence of satisfaction, the  

presumption is that non-submission of statement has facilitated the evasion of  

entry tax”.  It is in view of this that the Apex Court held that the Section does  

not suffer from any vice and the Section is required to be construed to mean  

that  the  presumption  contained  therein  is  rebuttable  and  secondly,  the  

penalty  stipulated  therein  is  only  the  maximum amount  which  would  be  

levied and the assessing authority has the discretion to levy lesser amount  

depending  upon  the  facts  and  circumstances  of  each  case.   Construing  

Section 7(5) in this manner, the Apex Court pointed out that the decision of  

the High Court that Section 7(5) is ultra vires cannot be sustained.  Applying  

this analogy in the instant case also, it is difficult  to accept the contention  

raised by the petitioner that the said Rule is ultra vires.  However, at the

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same  time,  the  authority  concerned  is  required  to  read  the  Rule  in  the  

manner indicated above.”

Following the said decision numerous matters came to be disposed of both, by  

the High Court and the Tribunal.

Ultimately, the matter came before this Court in the case of  Union of India Vs.  

Dharmendra Textile Processors on 19th July, 2007, when a Division Bench of this Court, to  

which one of us (Kapadia, J) was a party, formulated the question and referred the same to  

the larger Bench for its decision.  The reason for passing referral order is given in para 7,  

which reads as under:

“We are of the view that there is a conflict of opinions between the  

judgments of the Division Bench of this Court in the case of  Dilip N. Shroff  

Vs. Joint Commissioner of Income Tax, Mumbai (supra) on one hand and on  

the  other  hand  we  have  another  judgment  of  this  Court  in  the  case  of  

Chairman, SEBI Vs. Shriram Mutual Find & Anr. (supra).  Secondly, it may  

be pointed out that the object behind enactment of  Section 271(1)(c) read  

with the Explanations quoted above indicates that the said section has been  

enacted to provide for a remedy for loss of revenue. The penalty under the  

said  section  is  a  civil  liability.   Wilful  concealment  is  not  an  essential  

ingredient  for  attracting  the  civil  liability  as  is  the  case  in  the  matter  of  

prosecution under Section 276C of  the Act.   While considering an appeal  

against  an  order  made  under  Section  271(1)(c)  what  is  required  to  be  

examined is the record which the officer imposing the penalty had before him  

and if that record can sustain the finding there had been concealment, that  

would  be  sufficient  to  sustain  the  penalty.   Keeping  in  mind  these  two  

circumstances, we are of the view that the judgment of the Division Bench in  

the case of  Dilip N. Shroff Vs.  Joint Commissioner  of Income Tax, Mumbai  

(supra) needs consideration.  The Explanations   added  to  Section 271(1)(c)  

in  entirety also indicate  the element of  strict liability  on the assessee for  

concealment or for giving inaccurate particulars while filing returns.  The  

judgment in Dilip N. Shroff's  case has also not considered the provisions of  

Section 276C of the Income Tax Act.  Therefore, in our view, the judgment in

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the case of  Dilip N. Shroff Vs.  Joint Commissioner  of Income Tax, Mumbai  

(supra) needs consideration by the larger Bench of this Court  particularly  

when it has ramifications not only regarding provisions of the Income Tax  

Act but also with regard to the provisions of Sections 3A and 11AC of the  

Central Excise Act and Rule 96ZQ(5) of the Central Excise Rules.”

Subsequently,  the controversy is put to rest by the judgment of a three Judge  

Bench of this Court (in which one of us, Brother Alam was a party) in the case of Union of  

India Vs. Dharmendra Textile Processors which is reported in 2008 (13) SCALE 233.  It has  

been held, inter alia, in the said decision that the impugned Rule 96ZQ is mandatory.   

The consequence of the said judgment in  Dharmendra Textile Processors is that  

the challenge to the vires of Rule 96ZQ(5)(ii) in the Original Writ Petition before the High  

Courts stands revived.

In the circumstances, we remit this entire batch of Civil Appeals to the respective  

High Courts for deciding the question of vires of the above sub-rule.

Liberty  is  given  to  the  assessees  to  amend  the  Writ  petitions/Appeals,  if  so  

advised.  Liberty is also granted to both sides to complete their pleadings at the earliest  

before the High Court(s).

The civil appeals are disposed of accordingly.

....................J. [ S.H. KAPADIA ]

New Delhi, ....................J May 05, 2009 [ AFTAB ALAM ]  

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ITEM NO.102                  COURT NO.5                  SECTION III

           S U P R E M E   C O U R T   O F   I N D I A                          RECORD OF PROCEEDINGS

                CIVIL APPEAL NO(s). 3397 OF 2003

UNION OF INDIA & ORS.                                Appellant (s)

                     VERSUS

M/S. KRISHNA PROCESSORS & ANR.                       Respondent(s)

(With office report )

WITH  Civil Appeal Nos. 3398-3399 of 2003 – With prayer for interim relief and with office report

Civil Appeal No. 4096 of 2004 – With office report

Civil Appeal No. 3388 of 2006 – With office report

Civil Appeal No. 5277 of 2006 – With office report

Civil Appeal Nos. 675, 4316 and 4317 of 2007

Civil Appeal No. 1420 of 2007 – With office report

Civil Appeal No. 5931 of 2008 – With office report

Date: 05/05/2009  These Appeals were called on for hearing today.

CORAM :         HON'BLE MR. JUSTICE S.H. KAPADIA         HON'BLE MR. JUSTICE AFTAB ALAM

For Appellant(s) Mr. K. Radhakrishnan, Sr.Adv. Mr. Navin Prakash, Adv. Mr. C.V. Subba Rao, Adv. Ms. Ambica Radhakrishnan, Adv.

                   Mr. P. Parmeswaran,Adv.                     Mr. B. Krishna Prasad                  For Respondent(s) Mr. S.K. Bagaria, Sr.Adv. in CA.4317/2007: Mr. Tarun Gulati, Adv.                     Mr. Rony O. John, Adv.

Mr. Praveen Kumar, Adv.

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                    Mr. E.C. Agrawala                                           Mr. K.J. John, Adv. for

M/S. K.J. John & Co., Advs.

      UPON hearing counsel the Court made the following                            O R D E R  

The appeals are disposed of.

         (S. Thapar)         PS to Registrar

(Madhu Saxena) Court Master

The signed order is placed on the file.