REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APEPAL NOS. 10289-10303 OF 2003

Union of India and Ors. .....Appellants

versus

M/s Dharamendra Textile

Processors and Ors. .....

Respondents

Civil Appeal No. /08 @ SLP (C) No. 11431 of 2006

Civil Appeal No. /08 @ SLP (C) No. 12881 of 2006

Civil Appeal No. /08 @ SLP (C) No. 13123 of 2006

Civil Appeal No. /08 @ SLP (C) No. 13146 of 2006

Civil Appeal No. /08 @ SLP (C) No. 13766 of 2007

Civil Appeal No. /08 @ SLP (C) No. 14001 of 2006

Civil Appeal No. /08 @ SLP (C) No. 14164 of 2006

Civil Appeal No.1420 of 2007

Civil Appeal No. /08 @ SLP (C) No. 15485 of 2007

Civil Appeal No. 1643/2008

Civil Appeal No. /08 @ SLP (C) No. 16940 of 2006

Civil Appeal No. /08 @ SLP (C) No. 17105 of 2007

Civil Appeal No. /08 @ SLP (C) No. 17121 of 2007

Civil Appeal No. /08 @ SLP (C) No. 17130 of 2007

1

Civil Appeal No.1901/2008

Civil Appeal No. /08 @ SLP (C) No. 19704 of 2007

Civil Appeal No. /08 @ SLP (C) No. 21751 of 2007

Civil Appeal No. /08 @ SLP (C) No. 21829 of 2007

Civil Appeal No. /08 @ SLP (C) No. 23274 of 2004

Civil Appeal No. /08 @ SLP (C) No. 23593 of 2007

Civil Appeal No. /08 @ SLP (C) No. 23801 of 2007

Civil Appeal No. /08 @ SLP (C) No. 25122 of 2007

Civil Appeal No. /08 @ SLP (C) No. 25123 of 2007

Civil Appeal No. /08 @ SLP (C) No. 2730 of 2006

Civil Appeal No. 2793 of 2007

Civil Appeal No. /08 @ SLP (C) No. 3329 of 2007

Civil Appeal No.3388 of 2006

Civil Appeal No. 3397 of 2003

Civil Appeal Nos. 3398-3399 of 2003

Civil Appeal No. 4096 of 2004

Civil Appeal No. 4311 of 2007

Civil Appeal No. 4316 of 2007

Civil Appeal No. 4317 of 2007

Civil Appeal No. 4320 of 2007

Civil Appeal No. 4321 of 2007

Civil Appeal No. 4322 of 2007

Civil Appeal No. 4323 of 2007

Civil Appeal No. 4324 of 2007

Civil Appeal No. 4331 of 2007

Civil Appeal No. 4332 of 2007

2

Civil Appeal No. 4333 of 2007

Civil Appeal No. /08 @ SLP (C ) No. 5171 of 2007

Civil Appeal No. /08 @ SLP (C ) No. 5172 of 2007

Civil Appeal No. /08@ SLP (C ) No. 5177 of 2007

Civil Appeal No. 5272 of 2006

Civil Appeal No. 5277 of 2006

Civil Appeal No. 6001 of 2007

Civil Appeal No. /08 @ SLP (C ) No. 6297/2007

Civil Appeal No. /08 @ SLP (C ) No. 6315/2007

Civil Appeal No. 675 of 2007

Civil Appeal No. /08 @ SLP (C ) No. 6879/2007

Civil Appeal No. /08 @ SLP (C ) No. 7427/2006

Civil Appeal No. /08 @ SLP (C ) No. 809/2008

Civil Appeal No. /08 @ SLP (C ) No. 9529/2006

Civil Appeal No. /08 @ SLP (C ) No. 9531/2006

Civil Appeal No. /08 @ SLP (C ) No. 9532/2006

Civil Appeal No. /08 @ SLP (C ) No. 9533/2006

Civil Appeal No. /08 @ SLP (C ) No. 9534/2006

Civil Appeal No. /08 @ SLP (C ) No. 6300/2007

Civil Appeal No. /08 @ SLP (C ) No. 6303/2007

Civil Appeal No. /08 @ SLP (C ) No. 4663/2007

Civil Appeal No. /08 @ SLP (C ) No. 6304/2007

Civil Appeal No. 372 of 2007

Civil Appeal No.2146/2008

Civil Appeal No.1823 of 2008

Civil Appeal No. /08 @ SLP (C ) No. 3734 of 2007

Civil Appeal No. /08 @ SLP (C ) No. 19789 of 2007

3

Civil Appeal No. /08 @ SLP (C ) No. 14067/2007

Civil Appeal No. /08 @ SLP (C ) No. 3880/2007

Civil Appeal No.4094/2004

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

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

4

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. (2006 (5) SCC 361) 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

5

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).

4.During the course of hearing, learned counsel for the

parties agreed that a similar issue is involved in respect of

Rule 96ZO.

5.Mr. Chandrashekharan, Additional Solicitor General

submitted that in Rules 96ZQ and 96ZO there is no reference

to any mens rea as in Section 11AC where mens rea is

prescribed statutorily. This is clear from the extended period

of limitation permissible under Section 11A of the Act. It is in

6

essence submitted that the penalty is for statutory offence. It

is pointed out that the proviso to Section 11A deals with the

time for initiation of action. Section 11AC is only a mechanism

for computation and the quantum of penalty. It is stated that

the consequences of fraud etc. relate to the extended period of

limitation and the onus is on the revenue to establish that the

extended period of limitation is applicable. Once that hurdle is

crossed by the revenue, the assessee is exposed to penalty

and the quantum of penalty is fixed. It is pointed out that

even if in some statutes mens rea is specifically provided for,

so is the limit or imposition of penalty, that is the maximum

fixed or the quantum has to be between two limits fixed. In

the cases at hand, there is no variable and, therefore, no

discretion. It is pointed out that prior to insertion of Section

11AC, Rule 173Q was in vogue in which no mens rea was

provided for. It only stated “which he knows or has reason to

believe”. The said clause referred to wilful action. According to

learned counsel what was inferentially provided in some

respects in Rule 173Q, now stands explicitly provided in

Section 11AC. Where the outer limit of penalty is fixed and the

7

statute provides that it should not exceed a particular limit,

that itself indicates scope for discretion but that is not the

case here.

6.It was pointed out that Rule 96ZO refers to manufacturer

of ingots and billets while Rule 96ZQ relates to independent

processor of textile fabrics. They belong to the same category

and failure to pay duty attracts penal consequences. In the

other category in cases of fraud etc. penalty is for statutory

offence. It is pointed out that in Dilip Shroff's case (supra) the

question relating to discretion was not the basic issue. In fact,

Section 271(1)(c) of the I.T. Act provides for some discretion

and, therefore, that decision has no relevance. So far as the

present dispute is concerned, whether discretion has been

properly exercised is a question of fact. It is submitted that

Chairman SEBI’s case (supra) has full application to the facts

of the present case.

7.In reply, learned counsel for the respondent submitted

that the factual scenario in each case has to be examined. In

8

cases relatable to Section 11AC of the Act, the Appellate

Tribunal in some of the cases has come to a finding that there

was no wilful disregard involved and the assessee’s conduct

was bona fide. It is pointed out that Section 11A relates to the

expression “assessee shall be liable” and, therefore, there is

discretion to reduce the penalty. With reference to Sections

271C and 271B of the I.T. Act, it is pointed out that in the

case of former it is “liable” while in the latter it is “shall pay”.

Reference is also made to Sections 271F and 272A of the said

I.T. Act. Reliance is placed on a decision of this Court in State

of M.P. and Ors. v. Bharat Heavy Electricals (1997 (7) SCC 1)

to contend that even if this Court held that it appears to give

the expression that the imposition of penalty is mandatory, yet

there was a scope for exercise of discretion.

8.It is submitted that various degrees of culpability cannot

be placed on the same pedestal. Section 11AC can be

construed in a manner by reading into it the discretion. That

would be the proper way to give effect to the statutory

9

intention. The relevant provisions i.e. Section 11AC, Rule

96ZQ and Rule 96ZO read as follows:

"11AC- Penalty for short levy or non levy of

duty in certain cases- Where any duty of

excise has not been levied or paid or has been

short levied or short paid or erroneously

refunded by reasons of fraud, collusion or any

wilful mis-statement or suppression of facts,

or contravention of any of the provisions of

this Act or of the rules made thereunder with

intent to evade payment of duty, the person

who is liable to pay duty as determined under

sub-section (2) of section 11A, shall also be

liable to pay a penalty equal to the duty so

determined.

Provided that where such duty as

determined under sub-section (2) of section

11A, and the interest payable thereon under

section 11AB, is paid within thirty days from

the date of communication of the order of the

Central Excise Officer determining such duty,

the amount of penalty liable to be paid by

such person under this Section be twenty-five

per cent of the duty so determined:

Provided further that the benefit of

reduced penalty under the first proviso shall

be available if the amount of penalty so

determined has also been paid within the

period of thirty days referred to in that proviso:

Provided also that where the duty

determined to be payable is reduced or

increased by the Commissioner (Appeals), the

Appellate Tribunal or, as the case may be, the

10

court, then for the purposes of this section,

the duty, as reduced or increased, as the case

may be shall be taken into account:

Provided also that in case where the

duty determined to be payable is increased by

the Commissioner (Appeals), the Appellate

Tribunal or, as the case may be, the court

then the benefit of reduced penalty under the

first proviso shall be available, if the amount of

duty so increased, the interest payable thereon

and twenty five per cent, of the consequential

increase of penalty have also been paid within

thirty days of the communication of the order

by which such increase in the duty takes

effect.

Explanation- For the removal of doubts,

it is hereby declared that-

(1)the provisions of this section shall

also apply to cases in which the order

determining the duty under sub-section (2) of

section 11A, relates to notices issued prior to

the date on which the Finance Act, 2000

receives the assent of the President;

(2)any amount paid to the credit of the Central

Government prior to the date of communication of

the order referred to in the first proviso or the

fourth proviso shall be adjusted against the total

amount due from such person.

RULE 96ZO. Procedure to be followed by

the manufacturer of ingots and billets

(1) A manufacturer of non-alloy steel ingots

11

and billets falling under sub- heading Nos.

7206.90 and 7207.90 of the Schedule to the

Central Excise Tariff Act, 1985 (5 of 1986),

shall debit an amount calculated at the rate of

Rs. 750 per metric tone at the time of

clearance of ingots and billets of non-alloy

steel from his factory in the account-current

maintained by him under sub-rule (1) of rule

173G of the Central Excise Rules, 1944,

subject to the condition that the total amount

of duty liability shall be calculated and paid in

the following manner :-

I. Total amount of duty liability for the period

from the 1st day of 1 September, 1997 to the

31st day of March, 1998

(a) a manufacturer shall pay a total amount

calculated at the rate of Rs. 750 per metric

tonne on capacity of production of his factory

for the period from 1st day of September, 1997

to the 31stday of March, 1998, as determined

under the Induction Furnace Annual Capacity

Determination Rules, 1997. This amount shall

be paid by 31st day of March, 1998;

(b) the amount of duty already paid, together

with on-account amount paid by the

manufacturer, if any, during the period from

1st day of September,1997 to the 31st day of

March, 1998, shall be adjusted towards the

total amount of duty liability payable under

clause (a);

12

(c) if a manufacturer fails to pay the total

amount of duty payable under clause (a) by

the 31st day of March, 1998, he shall be liable

to pay the outstanding amount (that is the

amount of duty which has not been (paid by

the 31st day of March, 1998) along with

interest at the rate of eighteen percent per

annum on such outstanding amount

calculated for the period from the 1st day of

April, 1998 till the date of actual payment of

the outstanding amount :

Provided that if the manufacturer fails to pay

the total amount of duty payable under clause

(a) by the 30th day of April, 1998, he shall also

be liable to pay a penalty equal to the

outstanding amount of duty as on 30th day of

April, 1998 or five thousand rupees, whichever

is greater.

II. Total amount of duty liability for a financial

year subsequent to 1997-98 (a) a

manufacturer shall pay a total amount

calculated at the rate of Rs. 750/- per metric

tonne on the annual capacity of production of

his factory as determined under the Induction

Furnace Annual Capacity Determination

Rules, 1997. This amount shall be paid by the

31st day of March of the financial year;

(b) the amount of duty already paid, together

with on-account amount paid by the

manufacturer, if any, during the financial year

shall be adjusted towards the total amount of

duty liability;

13

(c) if a manufacturer fails to pay the total

amount of duty payable under clause (a) by

the 31st day of March, of the relevant financial

year, he shall be liable to, -

(i) pay the outstanding amount of duty (that is

the amount of duty which has not been paid

by the 31st day of March of the relevant

financial year) along with interest at the rate of

eighteen per cent. per annum on such

outstanding amount, calculated for the period

from the 1st day of April of the immediately

succeeding financial year till the date of actual

payment of the whole of outstanding amount;

and

(ii) a penalty equal to such outstanding

amount of duty or five thousand rupees,

whichever is greater.

(lA) If any manufacturer removes any of the

non-alloy steel ingots and billets specified in

sub-rule (I) without complying with the

requirements of the provisions of that sub-

rule, then all such goods shall be liable to

confiscation and the manufacturer shall be

liable to a penalty not exceeding three times

the value of such goods, or five thousand

rupees, whichever is greater

(2) Where a manufacturer does not produce

the ingots and billets of non- alloy steel during

any continuous period of not less than seven

14

days and wishes to claim abatement under

sub-section (3) of section 3A of the Central

Excise Act, 1944, the abatement will be

allowed by an order passed by the

Commissioner of Central Excise of such

amount as may be specified in such order,

subject to the fulfillment of the following

conditions, namely-

(a) the manufacturer shall inform in writing

about the closure to the 1Assistant

Commissioner of Central Excise or Deputy

Commissioner of Central Excise 1, with a copy

to the Superintendent of Central Excise, either

prior to the date of closure or on the date of

closure;

(b) the manufacturer shall intimate the

reading of the electricity meter to the Assistant

Commissioner of Central Excise or Deputy

Commissioner of Central Excise1, with a copy

to the Superintendent of Central Excise,

immediately after the production in his factory

is stopped along with the closing balance of

stock of the ingots and billets of non-alloy

steel;

(c) the manufacturer, when he starts

production again, shall inform in writing about

the starting of production to the Assistant

Commissioner of Central Excise or Deputy

Commissioner of Central Excise1, with a copy

to the Superintendent of Central Excise, either

prior to the date of starting production or on

the date of starting production;

(d) the manufacturer shall on start of

15

production again along with the closing

balance of stock on restarting the factory,

intimate the reading of the electricity meter to

the Assistant Commissioner of Central Excise

or Deputy Commissioner of Central Excise1,

with a copy to the Superintendent of Central

Excise;

(e) the manufacturer shall while sending

intimation under clause (c), declare that his

factory remained closed for a continuous

period starting from --hours on -(date) to --

hours on -(date).

(3) Notwithstanding anything contained

elsewhere in these rules, if a manufacturer

having a total furnace capacity of 3 metric

tonnes installed in his factory so desires, he

may, from the first day of September, 1997 to

the 31st day of March, 1998 or any other

financial year, as the case may be, pay a sum

of rupees five lakhs per month in two equal

installments, the first installment latest by the

15thday of each month, and the second

installment latest by the last day of each

month, and the amounts so paid shall be

deemed to be full and final discharge of his

duty liability for the period from the 1st day of

September, 1997 to the 31st day of March,

1998, or any other financial year, as the case

may be, subject to the condition that the

manufacturer shall not avail of the benefit, if

any, under sub-section (4) of the section 3A of

the Central Excise Act, 1944 (1 of 1944) :

Provided that for the month of September,

1997 the Commissioner may allow a

16

manufacturer to pay the sum of rupees five

lakhs by the 30th day of September, 1997:

Provided further that if the capacity of the

furnaces installed in a factory is more than or

less than 3 metric tonnes, or there is any

change in the total capacity, the manufacturer

shall pay the amount, calculated pro rata:

provided also that where a manufacturer fails

to pay the whole of the amount payable for any

month by the 15th day or the last day of such

month, as the case may be, he shall be liable

to,-

(i) pay the outstanding amount of duty along

with interest thereon at the rate of eighteen

per cent per annum, calculated for the period

from the 16th day of such month or the 1st

day of next month, as the case may be, till the

date of actual payment of the outstanding

amount; and

(ii) a penalty equal to such outstanding

amount of duty or five thousand rupees,

whichever is greater.

Provided that if the manufacturer fails to pay

the total amount of the duty payable for each

of the months from September, 1997 to March,

1998 by the 30th day of April, 1998, he shall

also be liable to pay a penalty equal to the

outstanding amount of duty as on 30th day of

April, 1998 or five thousand rupees, whichever

is greater.

17

Explanation - For removal of doubts it is

hereby clarified that sub-rule (3) does not

apply to an induction furnace unit which

ordinarily produces castings or stainless steel

products but may also incidentally produce

non-alloy steel ingots and billets.

(4) In case a manufacturer wishes to avail of

discharging his duty liability in terms of sub-

rule (3), he shall inform the Commissioner of

Central Excise, with a copy to the Assistant

Commissioner of Central Excise or Deputy

Commissioner of Central Excise, in the

following proforma:

"We (name of the factory), located at (address)

hereby wish to avail of the scheme described

in sub-rule (3) of rule 9620, for full and final

discharge of our duty liability for the

manufacture of ingots and billets of non-alloy

steel undersection3A of the Central Excise Act,

1944 (l of 1944).

Dated

Sd

Name and Designation

(With stamp)

18

RULE 96ZQ. Procedure to be followed by an

Independent processor of textile fabrics

(1) An independent processor of textile fabrics

falling under heading Nos.

52.07,52.08,52.09,54.06,54.07,

55.11,55.12,55.13 or 55.14, or processed

textile fabrics of cotton or man-made fibers,

falling under heading Nos. or sub-heading

Nos. 58.01, 58.02, 5806.10, 5806.40.

6001.12, 6001.22, 6001.92, 6002.20,

6002.30, 6002.43 or 6002.93, of the First

Schedule to Central Excise Tariff Act, 1985 (5

of 1986), shall debit an amount of duty of

Rs.2.0 lakhs per chamber per month,

Rs.2.5lakhs per chamber per month, Rs.3.0

lakhs per chamber per month or Rs.3.5 lakhs

per chamber per month, as the case may be,

on the annual capacity of production as

determined under the Hot-air Stenter

Independent Textile Processors Annual

Capacity Determination Rules, 1998.

(2) The amount of duty payable under sub-rule

(1) shall be debited by the independent

processor in the account current maintained

by him sub-rule (1) of rule 173G of the Central

Excise Rules, 1944.

(3) Fifty per cent. of the amount of duty

payable for a calendar month under sub-rule

(1) shall be paid by the 15th of the month and

the remaining amount shall be paid by the end

of that month.

19

Provided that the amount of duty payable

for the period from 16

th

December, 1998 to 31

st

December, 1998 shall be deposited on or

before the 31

st

day of December, 1998.

(4) The independent processor shall continue

to maintain records, and file returns,

pertaining to production, clearance,

manufacturing, storage, delivery or disposal of

goods, including the materials received for or

consumed in the manufacture of excisable

goods or other goods, the goods and materials

in stock with him and the duty paid by him, as

prescribed under the Central Excise Rules,

1944 and the notifications issued there under.

(5) If an independent processor fails to pay the

amount 0£ duty or any part thereof by the

date specified in sub-rule (3), he shall be liable

to, -

(i) pay the outstanding amount of duty along

with interest at the rate of twenty-four percent

per annum calculated for the outstanding

period on the outstanding amount; and

(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.

(6) If an independent processor, removes the

processed textile fabrics referred to in sub-rule

(1) without complying with any of the

requirements contained in sub-rule (4), then,

all such goods shall be liable to confiscation

and the independent processor shall be liable

20

to a penalty not exceeding rupees ten

thousand.

(7) Where an independent processor does not

produce or manufacture the processed textile

fabrics specified in sub-rule (1) during any

continuous period of not less than fifteen days

and wishes to claim abatement under sub-

section (3) of section 3A of the Act, the

abatement shall be allowed by an order passed

by the Joint Commissioner of Central Excise of

such amount as may be specified in such

order, subject to fulfillment of the following

conditions, namely: -

(a) abatement shall be applicable only on the

complete closure of the hot air stenter

containing the chambers and not in case of

closure of anyone or more chambers contained

in such stenter;

(aa) the independent processor shall not clear

any non-stentered fabrics during the period for

which abatement is claimed, and any

clearance by him of non-stentered fabrics

during such period shall be liable to

confiscation;

(b) the independent processor shall inform, in

writing, about such closure to the Deputy

Commissioner of Central Excise or the

Assistant Com- missioner of Central Excise, as

the case may be, with a copy to the

Superintendent of Central Excise, at least

three days prior to the date of such closure,

giving the following details, namely: -

21

(i) the name of the manufacturer of the stenter;

(ii) the date of purchase of the stenter;

(iii) the number of chambers as determined

under the Hot-air Stenter Independent Textile

Processors Annual Capacity Determination

Rules, 2000;

(iv) the serial number or identification no. of

the stenter; (v) reason for closure of the

stenter;

(vi) approximate number of days for which the

stenter shall remain closed;

(vii) date and time from which the closure is

intended; (c) the stenter or stenters shall be

sealed in such manner as may be pre- scribed

by the Commissioner of Central Excise;

(d) the independent processor, when he starts

production again, shall in- form in writing

about the date of starting of production to the

Deputy Commissioner of Central Excise or the

Assistant Commissioner of Central Excise, as

the case may be, with a copy to the

Superintendent of Central Excise, at least

three days prior to the date of starting

production, and get the seal opened in such

manner as may be specified by the

Commissioner of Central Excise before

recommencing the production;

22

(e) When the claim for abatement by the

independent processor is for a period less than

one month, he shall be required to pay the

duty, as applicable, for the entire period of one

month and may subsequently seek such claim

after payment of such duty;

(f) when the claim for abatement by the

independent processor is for a period of less

than one month or more, he shall not be

required to pay the duty for that period in

advance;

(g) If the claim for abatement by the

independent processor has been disallowed by

the Joint Commissioner of Central Excise, by a

written order made in this regard, the

independent processor shall pay the duty ,

and interest if any applicable, prior to getting

the stenter or stenters sealed under condition

(c) re-opened for resuming production :

Provided that the Commissioner of Central

Excise may condone, for reasons to be

recorded in writing, the delay in giving prior

information under clause (b), if he is satisfied

that such delay in giving information was

caused due to unavoidable circumstances.

Explanation. -For the purposes of these rules,

an "independent processor" means a

manufacturer who is engaged primarily in the

processing of fabrics with the aid of power and

23

who also has the facility in his factory

(including plant and equipment) for carrying

out heat-setting or drying, with the aid of

power or steam in a hot-air stenter and who

has no proprietary interest in any factory

primarily and substantially engaged in the

spinning of yarn or weaving or knitting of

fabrics, on or after the 10th December, 1998.

It would also be necessary to take note of Section 271(1)

( c) and Section 271C of the IT Act:

“Section 271-FAILURE TO FURNISH

RETURNS, COMPLY WITH NOTICES,

CONCEALMENT OF INCOME, ETC.

(1) If the Assessing Officer or the

Commissioner (Appeals) in the course of any

proceedings under this Act, is satisfied that

any person -

(a) Omitted

(b) Has failed to comply with a notice under

sub-section (1) of section 142 or sub-section

(2) of section 143 or fails to comply with a

direction issued under sub-section (2A) of

section 142; or

24

(c) Has concealed the particulars of his income

or furnished inaccurate particulars of such

income, he may direct that such person shall

pay by way of penalty, -

(i) Omitted

(ii) In the cases referred to in clause (b), in

addition to any tax payable by him, a sum

which shall not be less than one thousand

rupees but which may extend to twenty-five

thousand rupees for each such failure;

(iii) In the cases referred to in clause (c), in

addition to any tax payable by him, a sum

which shall not be less than but which shall

not exceed three times the amount of tax

sought to be evaded by reason of the

concealment of particulars of his income or the

furnishing of inaccurate particulars of such

income :

Explanation 1 : Where in respect of any facts

material to the computation of the total

income of any person under this Act, -

(A) Such person fails to offer an explanation or

offers an explanation which is found by the

Assessing Officer or the Commissioner

(Appeals) to be false, or

(B) Such person offers an explanation which

he is not able to substantiate and fails to prove

that such explanation is bona fide and that all

the facts relating to the same and material to

25

the computation of his total income have been

disclosed by him, then, the amount added or

disallowed in computing the total income of

such person as a result thereof shall, for the

purposes of clause (c) of this sub-section be

deemed to represent the income in respect of

which particulars have been concealed.

Explanation 2 : Where the source of any

receipt, deposit, outgoing or investment in any

assessment year is claimed by any person to

be an amount which had been added in

computing the income or deducted in

computing the loss in the assessment of such

person for any earlier assessment year or

years but in respect of which no penalty under

clause (iii) of this sub-section had been levied,

that part of the amount so added or deducted

in such earlier assessment year immediately

preceding the year in which the receipt,

deposit, outgoing or investment appears (such

earlier assessment year hereafter in this

Explanation referred to as the first preceding

year) which is sufficient to cover the amount

represented by such receipt, deposit or

outgoing or value of such investment (such

amount or value hereafter in this Explanation

referred to as the utilised amount) shall be

treated as the income of the assessee,

particulars of which had been concealed or

inaccurate particulars of which had been

furnished for the first preceding year; and

where the amount so added or deducted in the

first preceding year is not sufficient to cover

the utilised amount, that part of the amount

so added or deducted in the year immediately

preceding the first preceding year which is

sufficient to cover such part of the utilised

26

amount as is not so covered shall be treated to

be the income of the assessee, particulars of

which had been concealed or inaccurate

particulars of which had been furnished for

the year immediately preceding the first

preceding year and so on, until the entire

utilised amount is covered by the amounts so

added or deducted in such earlier assessment

years.

Explanation 3 : Where any person who has not

previously been assessed under this Act, fails,

without reasonable cause, to furnish within

the period specified in sub-section (1) of

section 153 a return of his income which he is

required to furnish under section 139 in

respect of any assessment year commencing

on or after the 1st day of April, 1989, and,

until the expiry of the period aforesaid, no

notice has been issued to him under clause (i)

of sub-section (1) of section 142 or section 148

and the Assessing Officer or the Commissioner

(Appeals) is satisfied that in respect of such

assessment year such person has taxable

income, then, such person shall, for the

purposes of clause (c) of this sub-section, be

deemed to have concealed the particulars of

his income in respect of such assessment year,

notwithstanding that such person furnishes a

return of his income at any time after the

expiry of the period aforesaid in pursuance of

a notice under section 148.

Explanation 4 : For the purpose of clause (iii)

of this sub-section, the expression "the

amount of tax sought to be evaded", - (a) In

any case where the amount of income in

27

respect of which particulars have been

concealed or inaccurate particulars have been

furnished exceeds the total income assessed,

means the tax that would have been

chargeable on the income in respect of which

particulars have been concealed or inaccurate

particulars have been furnished had such

income been the total income;

(b) In any case to which Explanation 3 applies,

means the tax on the total income assessed;

(c) In any other case, means the difference

between the tax on the total income assessed

and the tax that would have been chargeable

had such total income been reduced by the

amount of income in respect of which

particulars have been concealed or inaccurate

particulars have been furnished.

Explanation 5 : Where in the course of a

search under section 132, the assessee is

found to be the owner of any money, bullion,

jewellery or other valuable article or thing

(hereafter in this Explanation referred to as

assets) and the assessee claims that such

assets have been acquired by him by utilising

(wholly or in part) his income, - (a) For any

previous year which has ended before the date

of the search, but the return of income for

such year has not been furnished before the

said date, or, where such return has been

furnished before the said date, such income

has not been declared therein; or (b) for any

previous year which is to end on or after the

date of the search, then, notwithstanding that

such income is declared by him in any return

28

of income furnished on or after the date of the

search, he shall, for the purposes of imposition

of a penalty under clause (c) of sub-section (1)

of this section, be deemed to have concealed

the particulars of his income or furnished

inaccurate particulars of such income,

Unless, - (1) Such income is, or the

transactions resulting in such income are

recorded, - (i) In a case falling under clause

(a), before the date of the search; and

(ii) In a case falling under clause (b), on or

before such date, in the books of account, if

any, maintained by him for any source of

income or such income is otherwise disclosed

to the Chief Commissioner or Commissioner

before the said date; or

(2) He, in the course of the search, makes a

statement under sub-section (4) of section 132

that any money, bullion, jewellery or other

valuable article or thing found in his

possession or under his control, has been

acquired out of his income which has not been

disclosed so far in his return of income to be

furnished before the expiry of time specified in

sub-section (1) of section 139, and also

specifies in the statement the manner in which

such income has been derived and pays the

tax together with interest, if any, in respect of

such income.

Explanation 6 : Where any adjustment is made

in the income or loss declared in the return

under the proviso to clause (a) of sub-section

(1) of section 143 and additional tax charged

29

under that section, the provisions of this sub-

section shall not apply in relation to the

adjustment so made.

Section 271C

PENALTY FOR FAILURE TO DEDUCT TAX

AT SOURCE.

(1) If any person fails to - (a) Deduct the whole

or any part of the tax as required by or under

the provisions of Chapter XVII-B; or

(b) Pay the whole or any part of the tax as

required by or under, - (i) Sub-section (2) of

section 115-O; or

(ii) Second proviso to section 194B, then, such

person shall be liable to pay, by way of

penalty, a sum equal to the amount of tax

which such person failed to deduct or pay as

aforesaid.

(2) Any penalty imposable under sub-section

(1) shall be imposed by the Joint

Commissioner.

9.It is to be noted that in Chairman SEBI’s case (supra)

reference was made to the statutory scheme. It was noted that

the penalty was mandatory. It was pointed out that there was

30

a scheme attracting imposition of penalty. With reference to a

statute relating to breach of civil obligation, Section 9 of the

Act in that case related to criminal proceedings.

10.In Chairman, SEBI’s case (supra) it was noted as follows:

14. Mr Rao advanced elaborate arguments

and took us through the pleadings, the reply

received to the show-cause notice, the orders

of the adjudicating authority and of the

Appellate Tribunal. He drew our specific

attention to Regulation 25(7)(a) of the

Securities and Exchange Board of India

(Mutual Funds) Regulations, 1996 and

Sections 15-D(b), 15-E, 15-I, 15-J and 12-B of

the SEBI Act, 1992 which are extracted

hereunder:

“25. Asset management company and its

obligations.—(1)-(6) * * *

7. (a) An asset management company shall

not through any broker associated with the

sponsor, purchase or sell securities, which is

average of 5% or more of the aggregate

purchases and sale of securities made by the

mutual fund in all its schemes:

Provided that for the purpose of this sub-

regulation, aggregate purchase and sale of

security shall exclude sale and distribution of

units issued by the mutual fund:

31

Provided further that the aforesaid limit of

5% shall apply for a block of any three

months.”

“15-D. Penalty for certain defaults in case of

mutual funds.—If any person, who is—

(a)* * *

(b) registered with the Board as a collective

investment scheme, including mutual funds,

for sponsoring or carrying on any investment

scheme, fails to comply with the terms and

conditions of certificate of registration, he shall

be liable to a penalty of one lakh rupees for

each day during which such failure continues

or one crore rupees, whichever is less;

* * *

15-E. Penalty for failure to observe rules and

regulations by an asset management company.

—Where any asset management company of a

mutual fund registered under this Act fails to

comply with any of the regulations providing

for restrictions on the activities of the asset

management companies, such asset

management company shall be liable to a

penalty of one lakh rupees for each day during

which such failure continues or one crore

rupees, whichever is less.

* * *

15-I. Power to adjudicate.—(1) For the

purpose of adjudging under Sections 15-A, 15-

B, 15-C, 15-D, 15-E, 15-F, 15-G and 15-H, the

Board shall appoint any officer not below the

rank of a Division Chief to be an adjudicating

officer for holding an inquiry in the prescribed

manner after giving any person concerned a

32

reasonable opportunity of being heard for the

purpose of imposing any penalty.

(2) While holding an inquiry the

adjudicating officer shall have power to

summon and enforce the attendance of any

person acquainted with the facts and

circumstances of the case to give evidence or

to produce any document which in the opinion

of the adjudicating officer, may be useful for or

relevant to the subject-matter of the inquiry

and if, on such inquiry, he is satisfied that the

person has failed to comply with the provisions

of any of the sections specified in sub-section

(1), he may impose such penalty as he thinks

fit in accordance with the provisions of any of

those sections.

15-J. Factors to be taken into account by the

adjudicating officer.—While adjudging the

quantum of penalty under Section 15-I, the

adjudicating officer shall have due regard to

the following factors, namely—

(a) the amount of disproportionate gain or

unfair advantage, wherever quantifiable, made

as a result of the default;

(b) the amount of loss caused to an investor

or group of investors as a result of the default;

(c) the repetitive nature of the default.”

xxx xxx xxx

19. The scheme of the SEBI Act of imposing

penalty is very clear. Chapter VI-A nowhere

deals with criminal offences. These defaults for

failures are nothing but failure or default of

33

statutory civil obligations provided under the

Act and the Regulations made thereunder. It is

pertinent to note that Section 24 of the SEBI

Act deals with the criminal offences under the

Act and its punishment. Therefore, the

proceedings under Chapter VI-A are neither

criminal nor quasi-criminal. The penalty

leviable under this chapter or under these

sections is penalty in cases of default or failure

of statutory obligation or in other words

breach of civil obligation. In the provisions and

scheme of penalty under Chapter VI-A of the

SEBI Act, there is no element of any criminal

offence or punishment as contemplated under

criminal proceedings. Therefore, there is no

question of proof of intention or any mens rea

by the appellants and it is not an essential

element for imposing penalty under the SEBI

Act and the Regulations.

xxx xxx xxx

33. This Court in a catena of decisions has

held that mens rea is not an essential element

for imposing penalty for breach of civil

obligations:

(a) Director of Enforcement v. MCTM Corpn. (P)

Ltd.: (SCC pp. 478 & 480-81, paras 8 & 12-

13)

“8. It is thus the breach of a ‘civil obligation’

which attracts ‘penalty’ under Section 23(1)(a),

FERA, 1947 and a finding that the delinquent

has contravened the provisions of Section 10,

FERA, 1947 that would immediately attract

the levy of ‘penalty’ under Section 23,

irrespective of the fact whether the

contravention was made by the defaulter with

34

any ‘guilty intention’ or not. Therefore, unlike

in a criminal case, where it is essential for the

‘prosecution’ to establish that the ‘accused’

had the necessary guilty intention or in other

words the requisite ‘mens rea’ to commit the

alleged offence with which he is charged before

recording his conviction, the obligation on the

part of the Directorate of Enforcement, in

cases of contravention of the provisions of

Section 10 of FERA, would be discharged

where it is shown that the ‘blameworthy

conduct’ of the delinquent had been

established by wilful contravention by him of

the provisions of Section 10, FERA, 1947. It is

the delinquency of the defaulter itself which

establishes his ‘blameworthy’ conduct,

attracting the provisions of Section 23(1)(a) of

FERA, 1947 without any further proof of the

existence of ‘mens rea’. Even after an

adjudication by the authorities and levy of

penalty under Section 23(1)(a) of FERA, 1947,

the defaulter can still be tried and punished

for the commission of an offence under the

penal law.....

xx xx xx

12. In Corpus Juris Secundum, Vol. 85, at p.

580, para 1023, it is stated thus:

‘A penalty imposed for a tax delinquency is

a civil obligation, remedial and coercive in its

nature, and is far different from the penalty for

a crime or a fine or forfeiture provided as

punishment for the violation of criminal or

penal laws.’

35

13. We are in agreement with the aforesaid

view and in our opinion, what applies to ‘tax

delinquency’ equally holds good for the

‘blameworthy’ conduct for contravention of the

provisions of FERA, 1947. We, therefore, hold

that mens rea (as is understood in criminal

law) is not an essential ingredient for holding a

delinquent liable to pay penalty under Section

23(1)(a) of FERA, 1947 for contravention of the

provisions of Section 10 of FERA, 1947 and

that penalty is attracted under Section 23(1)(a)

as soon as contravention of the statutory

obligation contemplated by Section 10(1)(a) is

established. The High Court apparently fell in

error in treating the ‘blameworthy conduct’

under the Act as equivalent to the commission

of a ‘criminal offence’, overlooking the position

that the ‘blameworthy conduct’ in the

adjudicatory proceedings is established by

proof only of the breach of a civil obligation

under the Act, for which the defaulter is

obliged to make amends by payment of the

penalty imposed under Section 23(1)(a) of the

Act irrespective of the fact whether he

committed the breach with or without any

guilty intention."

(b) J.K. Industries Ltd. v. Chief Inspector of

Factories and Boilers: (SCC p. 692, para 42)

“42. The offences under the Act are not a

part of general penal law but arise from the

breach of a duty provided in a special

beneficial social defence legislation, which

creates absolute or strict liability without proof

of any mens rea. The offences are strict

statutory offences for which establishment of

mens rea is not an essential ingredient. The

36

omission or commission of the statutory

breach is itself the offence. Similar type of

offences based on the principle of strict

liability, which means liability without fault or

mens rea, exist in many statutes relating to

economic crimes as well as in laws concerning

the industry, food adulteration, prevention of

pollution, etc. in India and abroad. ‘Absolute

offences’ are not criminal offences in any real

sense but acts which are prohibited in the

interest of welfare of the public and the

prohibition is backed by sanction of penalty.”

c) R.S. Joshi v. Ajit Mills Ltd.: (SCC p. 110, para

19)

“Even here we may reject the notion that a

penalty or a punishment cannot be cast in the

form of an absolute or no-fault liability but

must be preceded by mens rea. The classical

view that ‘no mens rea, no crime’ has long ago

been eroded and several laws in India and

abroad, especially regarding economic crimes

and departmental penalties, have created

severe punishments even where the offences

have been defined to exclude mens rea.

Therefore, the contention that Section 37(1)

fastens a heavy liability regardless of fault has

no force in depriving the forfeiture of the

character of penalty.”

(d) Gujarat Travancore Agency v. CIT: (SCC p.

55, para 4)

“It is sufficient for us to refer to Section 271

(1)(a), which provides that a penalty may be

37

imposed if the Income Tax Officer is satisfied

that any person has without reasonable cause

failed to furnish the return of total income,

and to Section 276-C which provides that if a

person wilfully fails to furnish in due time the

return of income required under Section 139

(1), he shall be punishable with rigorous

imprisonment for a term which may extend to

one year or with fine. It is clear that in the

former case what is intended is a civil

obligation while in the latter what is imposed

is a criminal sentence. There can be no

dispute that having regard to the provisions of

Section 276-C, which speaks of wilful failure

on the part of the defaulter and taking into

consideration the nature of the penalty, which

is punitive, no sentence can be imposed under

that provision unless the element of mens rea

is established. In most cases of criminal

liability, the intention of the legislature is that

the penalty should serve as a deterrent. The

creation of an offence by statute proceeds on

the assumption that society suffers injury by

the act or omission of the defaulter and that a

deterrent must be imposed to discourage the

repetition of the offence. In the case of a

proceeding under Section 271(1)(a), however, it

seems that the intention of the legislature is to

emphasise the fact of loss of revenue and to

provide a remedy for such loss, although no

doubt an element of coercion is present in the

penalty. In this connection the terms in which

the penalty falls to be measured is significant.

Unless there is something in the language of

the statute indicating the need to establish the

element of mens rea it is generally sufficient to

prove that a default in complying with the

statute has occurred. In our opinion, there is

nothing in Section 271(1)(a) which requires

38

that mens rea must be proved before penalty

can be levied under that provision

Swedish Match AB v. SEBI: (SCC p. 671, para

113)

“The provisions of Section 15-H of the Act

mandate that a penalty of rupees twenty-five

crores may be imposed. The Board does not

have any discretion in the matter and, thus,

the adjudication proceeding is a mere

formality. Imposition of penalty upon the

appellant would, thus, be a forgone

conclusion. Only in the criminal proceedings

initiated against the appellants, existence of

mens rea on the part of the appellants will

come up for consideration.”

(f) SEBI v. Cabot International Capital Corpn:

(Comp Cas pp. 862 & 864-65, paras 47,

52 & 54)

“47. Thus, the following extracted principles

are summarised:

(A) Mens rea is an essential or sine qua non

for criminal offence.

(B) A straitjacket formula of mens rea

cannot be blindly followed in each and every

case. The scheme of a particular statute may

be diluted in a given case.

(C) If, from the scheme, object and words

used in the statute, it appears that the

proceedings for imposition of the penalty are

adjudicatory in nature, in contradistinction to

39

criminal or quasi-criminal proceedings, the

determination is of the breach of the civil

obligation by the offender. The word ‘penalty’

by itself will not be determinative to conclude

the nature of proceedings being criminal or

quasi-criminal. The relevant considerations

being the nature of the functions being

discharged by the authority and the

determination of the liability of the

contravenor and the delinquency.

(D) Mens rea is not essential element for

imposing penalty for breach of civil obligations

or liabilities.

(There can be two distinct liabilities, civil

and criminal under the same Act.

xx xx xx

52. The SEBI Act and the Regulations, are

intended to regulate the securities market and

the related aspects, the imposition of penalty,

in the given facts and circumstances of the

case, cannot be tested on the ground of ‘no

mens rea, no penalty’. For breaches of

provisions of the SEBI Act and Regulations,

according to us, which are civil in nature,

mens rea is not essential. On particular facts

and circumstances of the case, proper exercise

of judicial discretion is a must, but not on

foundation that mens rea is essential to

impose penalty in each and every breach of

provisions of the SEBI Act.

* * *

40

54. However, we are not in agreement with

the Appellate Authority in respect of the

reasoning given in regard to the necessity of

mens rea being essential for imposing the

penalty. According to us, mens rea is not

essential for imposing civil penalties under the

SEBI Act and Regulations.”(emphasis in

original)

11.The decision in Bharat Heavy Electricals’s case (supra)

cannot be of any assistance to the assessee because the same

proceeded on the basis of concession. Even otherwise, it was

not open to the Bench to read, into a statute which was

specific and clear, something which is not specifically provided

for in the statute.

12.The stand of learned counsel for the assessee is that the

absence of specific reference to mens rea is a case of casus

omissus. If the contention of learned counsel for the assessee

is accepted that the use of the expression “assessee shall be

liable” proves the existence of discretion, it would lead to a

very absurd result. In fact in the same provision there is an

41

expression used i.e. “liability to pay duty”. It can by no stretch

of imagination be said that the adjudicating authority has

even a discretion to levy duty less than what is legally and

statutorily leviable. Most of cases relied upon by learned

counsel for the assessee had their foundation on Bharat

Heavy Electrical’s case (supra). As noted above, the same is

based on concession and in any event did not indicate the

correct position in law.

13.It is a well-settled principle in law that the court cannot

read anything into a statutory provision or a stipulated

condition which is plain and unambiguous. A statute is an

edict of the legislature. The language employed in a statute is

the determinative factor of legislative intent. Similar is the

position for conditions stipulated in advertisements.

14.Words and phrases are symbols that stimulate mental

references to referents. The object of interpreting a statute is

to ascertain the intention of the legislature enacting it. (See

42

Institute of Chartered Accountants of India v. Price Waterhouse

1977 6 SCC 312). The intention of the legislature is primarily

to be gathered from the language used, which means that

attention should be paid to what has been said as also to what

has not been said. As a consequence, a construction which

requires for its support, addition or substitution of words or

which results in rejection of words as meaningless has to be

avoided. As observed in Crawford v. Spooner (1846) 6 MOO

PC1, the courts cannot aid the legislature’s defective phrasing

of an Act, they cannot add or mend, and by construction make

up deficiencies which are left there. (See State of Gujarat v.

Dilipbhai Nathjibhai Patel 1998 (3) SCC 234). It is contrary to

all rules of construction to read words into an Act unless it is

absolutely necessary to do so. [See Stock v. Frank Jones

(Tipton) Ltd 1978 (1) ALL ER 948.] 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 an Act of Parliament unless

clear reason for it is to be found within the four corners of the

Act itself. (Per Lord Loreburn, L.C. in Vickers Sons”)

43

15.The question is not what may be supposed and has been

intended but what has been said. “Statutes should be

construed not as theorems of Euclid”, Judge Learned Hand

said, “but words must be construed with some imagination of

the purposes which lie behind them”. (See Lenigh Valley Coal

Co. v. Yensavage 218 FR 547) The view was reiterated in Union

of India v. Filip Tiago De Gama of Vedem Vasco De Gama

(1990) 1 SCC 277 (SCC p. 284, para 16).

16.In D.R. Venkatachalam v. Dy. Transport Commr. (1977) 2

SCC 273, it was observed that the courts must avoid the

danger of a priori determination of the meaning of a provision

based on their own preconceived notions of ideological

structure or scheme into which the provision to be interpreted

is somewhat fitted. They are not entitled to usurp legislative

function under the disguise of interpretation.

44

17.While interpreting a provision the court only interprets

the law and cannot legislate it. If a provision of law is misused

and subjected to the abuse of process of law, it is for the

legislature to amend, modify or repeal it, if deemed necessary.

(See CST v. Popular Trading Co. (2000) 5 SCC 511) The

legislative casus omissus cannot be supplied by judicial

interpretative process.

18.Two principles of construction - one relating to casus

omissus and the other in regard to reading the statute as a

whole, appear to be well settled. Under the first principle a

casus omissus cannot be supplied by the court except in the

case of clear necessity and when reason for it is found in the

four corners of the statute itself but at the same time a casus

omissus should not be readily inferred and for that purpose

all the parts of a statute or section must be construed together

and every clause of a section should be construed with

reference to the context and other clauses thereof so that the

construction to be put on a particular provision makes a

consistent enactment of the whole statute. This would be more

45

so if literal construction of a particular clause leads to

manifestly absurd or anomalous results which could not have

been intended by the legislature. “An intention to produce an

unreasonable result”, said Danckwerts, L.J. in Artemiou v.

Procopiou (1965) 3 ALL ER 539 (All ER p.544 I) “is not to be

imputed to a statute if there is some other construction

available”. Where to apply words literally would “defeat the

obvious intention of the legislation and produce a wholly

unreasonable result”, we must “do some violence to the

words” and so achieve that obvious intention and produce a

rational construction. [Per Lord Reid in Luke v. IRC (1963) AC

557 where at AC p. 577 he also observed: (All ER p.664 I)

“This is not a new problem, though our standard of drafting is

such.

19.It is then true that:

“When the words of a law extend not to an

inconvenience rarely happening, but due to

those which often happen, it is good reason

not to strain the words further than they

reach, by saying it is casus omissus, and that

the law intended quae frequentius accidunt.”

46

“But”, on the other hand,

“it is no reason, when the words of a law do

enough extend to an inconvenience seldom

happening, that they should not extend to it as

well as if it happened more frequently, because

it happens but seldom”. (See Fenton v.

Hampton (1858) 11 MOO PC 347).

20.A casus omissus ought not to be created by

interpretation, save in some case of strong necessity. Where,

however, a casus omissus does really occur, either through

the inadvertence of the legislature, or on the principle quod

enim semel aut bis existit praetereunt legislatores, the rule is

that the particular case, thus left unprovided for, must be

disposed of according to the law as it existed before such

statute - casus omissus et oblivioni datus dispositioni

communis juris relinquitur; “a casus omissus”, observed

Buller, J. in Jones v. Smart 1785 (1) TR 44:99 ER 963 (ER p.

967) “can in no case be supplied by a court of law, for that

would be to make laws”. The principles were examined in

47

detail in Maulavi Hussein Haji Abraham Umarji v. State of

Gujarat (2004 (6) SCC 672).

21.The golden rule for construing all written instruments

has been thus stated:

“The grammatical and ordinary sense of the

words is to be adhered to unless that would

lead to some absurdity or some repugnance or

inconsistency with the rest of the instrument,

in which case the grammatical and ordinary

sense of the words may be modified, so as to

avoid that absurdity and inconsistency, but no

further.” (See Grey v. Pearson.)

22.The latter part of this “golden rule” must, however, be

applied with much caution. “If”, remarked Jervis, C.J.,

“the precise words used are plain and

unambiguous, in our judgment, we are bound

to construe them in their ordinary sense, even

though it do lead, in our view of the case, to an

absurdity or manifest injustice. Words may be

modified or varied, where their import is

doubtful or obscure. But we assume the

functions of legislators when we depart from

the ordinary meaning of the precise words

used, merely, because we see, or fancy we see,

an absurdity or manifest injustice from an

48

adherence to their literal meaning”. (See Abley

v. Dale, ER p.525)

23.The above position was highlighted in Sangeeta Singh v.

Union of India and Ors. (2005 (7) SCC 484).

24.It is of significance to note that the conceptual and

contextual difference between Section 271(1) (c) and Section

276C of the IT Act was lost sight of in Dilip Shroff's case

(supra).

25.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

(supra) 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. Wilful

49

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.

26.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.

27.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 (supra) was not correctly

decided but Chairman, SEBI’s case (supra) has analysed the

legal position in the correct perspectives. The reference is

answered. The mater shall now be placed before the Division

Bench to deal with the matter in the light of what has been

stated above, only so far as the cases where challenge to vires

of Rule 967Q(5). In all other cases the orders of the High

50

Court or the Tribunal, as the case may be, are quashed and

the matter remitted to it for disposal in the light of present

judgments. Appeals except Civil Appeal Nos. 3388 of 2006,

3397 of 2003, 3398-99 of 2003, 4096 of 2004, 4316 of 2007,

4317 of 2007, 5277 of 2006, 675 of 2007, 1420 of 2007 and

appeal relating to SLP (C ) No.21751 of 2007 are allowed and

the excepted appeals shall now be placed before the Division

Bench for disposal.

...................................J.

(Dr. ARIJIT PASAYAT)

...................................J.

(P. SATHASIVAM)

...................................J.

(AFTAB ALAM)

New Delhi,

September 29, 2008

51