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PETITIONER:

ZUNJARRAO BHIKAJI NAGARKAR

Vs.

RESPONDENT:

U.O.I. AND OTHERS

DATE OF JUDGMENT: 06/08/1999

BENCH:

S.Saghir Ahmad, D.P.Wadhwa

JUDGMENT:

D.P. Wadhwa, J.

Leave granted.

Appellant Zunjarrao Bhikaji Nagarkar was posted as

Collector of Central Excise, Nagpur in the year 1995.

Collector is now called Commissioner after amendment of the

Central Excise Act, 1944 (for short the 'Act') by the

Finance Act of 1995. Presently the appellant is posted as

Director, National Academy of Customs, Excise and Narcotics,

Mumbai. He was served with a memorandum dated September 2,

1997 under Rule 14 of the Central Civil Services

(Classification, Control and Appeal) Rules, 1965 informing

him that the President proposes to hold an inquiry against

him on the allegation that he favoured M/s. Hari Vishnu

Packaging Ltd., Nagpur (assessee) by not imposing penalty on

it under Rule 173Q of the Central Excise Rules, 1944

('Rules' for short) when he passed an order in Original No.

20/95 dated March 2, 1995 holding that the assessee had

clandestinely manufactured and cleared the excisable goods

wilfully and evaded the excise duty and had ordered

confiscation of the goods.

The appellant approached the Central Administrative

Tribunal, Mumbai (CAT) challenging the proposed inquiry by

filing Original Application No. 250 of 1998 on March 18,

1998. While admitting the application CAT granted interim

relief and stayed the disciplinary proceedings against the

appellant. This application was, however, dismissed by CAT

by order dated August 12, 1998 with the result the interim

order stood vacated. Immediately thereafter the appellant

filed a writ petition in the Bombay High Court, it being

Writ Petition No. 4717 of 1998. It was dismissed in limine

by a Bench of the High Court by order dated September 7,

1998. This led the appellant to come to this Court in

appeal by filing Special Leave Petition. While issuing

notice on the Petition this Court granted interim stay.

The appellant has challenged the initiation of

disciplinary proceedings against him. Before we consider

his pleas we may as well note sequence of events leading to

the issuance of the memorandum dated September 2, 1997.

Section 33 of the Act gives powers to Central Excise

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authorities to adjudicate. Under this Section 'where by the

rules made under the Act anything is liable to confiscation

or any person is liable to a penalty, such confiscation or

penalty may be adjudged without limit, by a Commissioner of

Central Excise'.

In exercise of powers conferred by Section 33 of the

Act the appellant held adjudication proceedings against the

assessee and two others. A show-cause notice was issued to

the assessee on the following grounds:-

"(a) It had clandestinely cleared 2,55,000 Nos. of

HDPE woven sacks totally valued at Rs.13,77,000/- without

payment of Central Excise duty amounting to Rs.4,81,950/-

(including the 95000 Nos. of HDPE sacks seized in transit)

without cover of GP1's and without recording the

productions, clearance in Central Excise records in

contravention of Central Excise Rules 9, 49, 52A, 53, 173G

and 226 of Central Excise Rules, 1944. Hence duty of

Rs.4,81,950/- appeared recoverable from them under Rule 9(2)

of Central Excise Rules, 1944 read with proviso (i) to

Section 11-A of CESA, 1944.

(b) It appeared to have willfully with the intention

to evade Central Excise duty, cleared clandestinely 95000

Nos. of HDPE sacks valued at 4,18,000/- without recording

in Central Excise records, without issue of Central Excise

gate pass and without payment of Central Excise duty. These

goods seized in transit along with Truck No. 4145 on

16.1.94 appeared liable for confiscation under Rule 173Q of

CESA, 1944.

(c) It also appeared to have willfully not recorded

the production of 25,500 Nos. of 'L' shaped HDPE sacks

valued at Rs.1,27,500/- in their RG-1 register with the

intention to clear the same clandestinely without payment of

duty as this quantity was found in excess than the recorded

balance and therefore appeared liable to confiscation under

Rule 173-Q of the Central Excise Rules, 1944.

(d) It also appeared liable for penal action under

Rule 173-Q of the Central Excise Rules, 1944."

The assessee was asked to show-cause as to why central

excise duty of Rs.4,81,950/- be not recovered from him under

Rule 9(2) read with proviso to Section 11-A of the Act and

why not 95,000 numbers and 25,500 numbers of HDPE bags

seized in transit and from its factory premises be

confiscated and why penalty be not imposed on it under Rule

173-Q of the Rules.

After examining the evidence on record and hearing the

assessee the appellant by his order in Original No. 20 of

1995 held as under:-

"In view of the foregoing, I hereby pass the following

order:-

I confirm the excise duty of Rs.3,57,000/- on 25,500

Nos. of HDPE Woven sacks removed by Noticee-1 clandestinely

under Rule 9(2) of the Central Excise Rules, 1944 read with

proviso to Section 11-A of the CESA, 1944.

95,000 bags cleared clandestinely by Noticee-1 and

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seized on 16.1.1994 are liable for confiscation under Rule

173-Q of C.Ex. Rules, 1944. However, I find that the goods

had been released provisionally on execution of bond for the

full value of the goods and cash security of Rs.1 lakh. As

the goods are not available for confiscation, I appropriate

the amount of Rs.10,000/- in lieu of confiscation.

I order confiscation of 'L' shaped 25,500 Nos. of

HDPE woven sacks valued at Rs.1,27,500/- under Rule 173Q of

C. Ex. Rules, 1944. I however, allow the goods to be

redeemed on payment of Rs.10,000/- (Rs. Ten Thousand

only)."

Appellant directed release of the vehicle from where

the goods were seized by appropriating the cash security or

Rs.10,000/- in lieu of confiscation. He said the owner of

the vehicle was a transporter. He did not impose any

penalty on the transporter but cautioned him not to repeat

such act as the same would be viewed seriously in future.

As regards the third noticee he was also cautioned.

Under Section 35B of the Act an appeal lies to the

Customs, Excise and Gold (Control) Appellate Tribunal

(Appellate Tribunal) against a decision or order passed by

the Commissioner of Central Excise as an adjudicating

authority. Powers have been conferred on the Central Board

of Excise and Customs (Board) under Section 35E of the Act

to pass certain orders. This Section, in relevant part, is

as under:-

"35E. Powers of Board or Commissioner of Central

Excise to pass certain orders. - (1) The Board may, of its

own motion, call for and examine the record of any

proceeding in which a Commissioner of Central Excise as an

adjudicating authority has passed any decision or order

under this Act for the purpose of satisfying itself as to

the legality or propriety of any such decision or order and

may, by order, direct such Commissioner to apply to the

Appellate Tribunal for the determination of such points

arising out of the decision or order as may be specified by

the Board in its order.

(2) .........

(3) No order shall be made under sub-section (1) or

sub-section (2) after the expiry of one year from the date

of the decision or order of the adjudicating authority.

(4) Where in pursuance of an order under sub-section

(1) or sub-section (2) the adjudicating authority or the

authorised officer makes an application to the Appellate

Tribunal or the Commissioner (Appeals) within a period of

three months from the date of communication of the order

under sub- section (1) or sub-section (2) to the

adjudicating authority, such application shall be heard by

the Appellate Tribunal or the Commissioner (Appeals), as the

case may be, as if such application were an appeal made

against the decision or order of the adjudicating authority

and the provisions of this Act regarding appeals, including

the provisions of sub-section (4) of Section 35B shall, so

far as may be, apply to such application.

(5) ........."

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By order dated February 26, 1996 made under Section

35E of the Act Board directed the appellant to file appeal

to the Appellate Tribunal to determine whether his order in

Original No. 20/95 dated March 20, 1995 against the

assessee was correct, legal and proper and whether the

appellant ought to have imposed penalty. Accordingly appeal

was filed before the Appellate Tribunal which, it is stated,

is still pending.

Mr. Raju Ramachandran, learned senior advocate,

appearing for the appellant, raised the following points in

support of the appeal:-

1. Adjudication order by the appellant is quasi

judicial in nature whereby he confirmed the confiscation of

the goods and the duty demanded. He did not choose to

impose any penalty in the facts and circumstances of the

case. Merely on that ground he could not be subjected to

the disciplinary proceedings.

2. The undisputed facts which appear from the record

are as follows:-

a) Admittedly by the said order, the goods in question

stood confiscated and the duty demand amounting to

Rs.3,57,000/- stood confirmed. b) The memo of charge read

with the imputation of misconduct only alleged that the

appellant was in error by not having imposed a penalty but

there is no allegation of any corrupt motive or any

familiarity with the party. c) The aforesaid is further

buttressed by the fact that the Department does not want to

produce any witness and the list of documents only pertain

to the record of this case.

3. In view of the above, the allegations made in the

charge-sheet do not show any culpability on the part of the

petitioner nor do they amount to misconduct. That being so,

the present charge-sheet is liable to be quashed because on

the face of it, no misconduct is disclosed which is a sine

qua non to the maintainability of any charge-sheet. In this

context, the appellant relies upon the analogy underlying

Order 7 Rule 11, CPC and Section 482 of Cr.P.C. for

quashing of FIRs.

4. Even otherwise, as per the decision of this Court

in Union of India and others vs. K.K. Dhawan (1993 (2) SCC

56), a charge sheet can only be issued if there is prima

facie material. In the present case, there is no material

let alone prima facie material, rendering the charge-sheet

void ab initio.

5. A perusal of the statement of imputations annexed

along with the charge-sheet demonstrates that the case of

the respondents is that by having committed an error of law

which was favourable to the party, the appellant has shown

favour. On the face of it, such conduct cannot constitute

favour as required to sustain a charge of a misconduct. In

other words, in the submission of the appellant committing

an error of law does not amount to showing of favour which

is the sine qua non for the maintainability of the

charge-sheet.

6. An error of law, assuming it was committed can

only be corrected by recourse to the Appellate Forum.

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7. Provisions of Rule 173Q are not mandatory and the

discretion vests with the adjudicating authority whether to

impose any penalty or not in the circumstances of the case.

Section 11AC was introduced in the Act by Finance (No. 2)

Act, 1996, w.e.f. September 28, 1996, under which levy of

penalty is now mandatory.

In answer to these pleas raised by the appellant Mr.

Harish Chandra, learned senior advocate for the Union of

India submitted that there was sufficient material to

proceed against the appellant and that the CAT and the High

Court were right in not interfering in the disciplinary

proceedings at the very threshold. He said the appellant

would have the opportunity to defend himself in the

proceedings which have been initiated against him. He said

provisions of Rule 173Q are mandatory and that Section 11AC

also mandates levy of penalty.

In the course of the arguments in support of the rival

contentions we were referred to various judgments of this

Court. Before we examine these judgments we may set out the

provisions of Rule 173Q and Section 11AC:-

"173Q. Confiscation and penalty. - (1) If any

manufacturer, producer, registered person of a warehouse or

a registered dealer -

(a) removes any excisable goods in contravention of

any of the provisions of these rules; or

(b) does not account for any excisable goods

manufactured, produced or stored by him; or

(bb) .........

(bbb) .........

(c) .........

(d) contravenes any of the provisions of these rules

with intent to evade payment of duty,

then, all such goods shall be liable to confiscation

and the manufacturer, producer, registered person of a

warehouse or a registered dealer, as the case may be, shall

be liable to a penalty not exceeding three times the value

of the excisable goods in respect of which any contravention

of the nature referred to in clause (a) or clause (b) or

clause (bb) or clause (c) or clause (d) has been committed,

or five thousand rupees, whichever is greater."

"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

willful 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 section11A, shall also be liable to pay a

penalty equal to the duty so determined:

Provided that where the duty determined to be payable

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is reduced or increased by the Commissioner (Appeals), the

Appellate Tribunal or, as the case may be, the court, then,

for the purposes of this section, the duty as reduced or

increased, as the case may be, shall be taken into account."

Section 37 of the Act empowers the Central Government

to make rules carrying into effect the purposes of the Act.

Sub-section (5) of Section 37 is relevant, which is as

under:-

"(5) Notwithstanding anything contained in sub-section

(3), the Central Government may make rules to provide for

the imposition upon any person who acquires possession of,

or is in any way concerned in transporting, removing,

depositing, keeping, concealing, selling or purchasing, or

in any other manner deals with, any excisable goods which he

knows or has reason to believe are liable to confiscation

under this Act or the rules made thereunder, a penalty not

exceeding three times the value of such goods or five

thousand rupees, whichever is greater."

Reference may now be made to a few decisions cited at

the Bar.

In Union of India vs. K.K. Dhawan [(1993) 2 SCC 56)

respondent was working as Income Tax Officer. A charge

Memorandum was served on him that it was proposed to held an

inquiry against him under Rule 14 of the Central Civil

Services (Classification, Control and Appeal) Rules, 1965.

In the statement of article of charge framed against him, it

was alleged that he completed assessment of nine firms in

"an irregular manner, in undue haste and apparently with a

view to conferring undue favour upon the assesses

concerned". An application filed by the respondent against

the proposed action was allowed by the Central

Administrative Tribunal and it was held that orders passed

by the respondent as Income Tax Officer were quasi judicial

and could not have formed the basis of disciplinary action.

Charge Memorandum was, thus, set aside. The question before

this Court was whether an authority enjoyed immunity from

disciplinary proceedings with respect to matters decided by

him in exercise of quasi judicial functions. After

examining the early decisions of this Court in V.D. Trivedi

vs. Union of India [(1993) 2 SCC 55]; Union of India vs.

R.K. Desai [(1993) 2 SCC 49]; Union of India vs. A.N.

Saxena [(1992) 3 SCC 124]and also in S. Govinda menon vs.

Union of India [AIR 1967 SC 1274] this Court held as under :

"Certainly, therefore, the officer who exercises

judicial or quasi judicial powers acts negligently or

recklessly or in order to confer undue favour on a person is

not acting as a Judge. Accordingly, the contention of the

respondent has to be rejected. It is important to bear in

mind that in the present case, we are not concerned with the

correctness or legality of the decision of the respondent

but the conduct of the respondent in discharge of his duties

as an officer. The legality of the orders with reference to

the nine assessments may be questioned in appeal or revision

under the Act but we have no doubt in our mind that the

Government is not precluded from taking the disciplinary

action for violation of the Conduct Rules. Thus, we

conclude that the disciplinary action can be taken in the

following cases :

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(i) Where the officer had acted in a manner as would

reflect on his reputation for integrity or good faith or

devotion to duty;

(ii) if there is prima facie material to show

recklessness or misconduct in the discharge of his duty;

(iii)if he has acted in a manner which is unbecoming

of a Government servant;

(iv) if he had acted negligently or that he omitted

the prescribed conditions which are essential for the

exercise of the statutory powers;

(v) if he had acted in order to unduly favour a party;

(vi) if he had been actuated by corrupt motive,

however, small the bribe may be because Lord Coke said long

ago "though the bribe may be small yet the fault is great".

The instances above catalogued are not exhaustive.

however, we may add that for a mere technical violation or

merely because the order is wrong and the action not falling

under the above enumerated instances, disciplinary action is

not warranted. Here, we may utter a word of caution. Each

case will depend upon the facts and no absolute rule can be

postulated."

In Union of India & Ors. vs. Upendra Singh [(1994) 3

SCC 357] question was again raised if the Central

Administrative Tribunal was right in staying the

disciplinary proceedings against the respondent who was

served with a charge-sheet. It was alleged against him that

while working as Deputy Commissioner of Income- Tax, he gave

illegal and improper directions to the assessing officer to

complete the assessments of three firms under Section 143(1)

of the Income Tax Act even though at the relevant time

proceedings under Section 144A of the Income Tax Act were

pending before him and these cases did not come within the

purview of summary assessment scheme of Amnesty Scheme of

the Central Board of Direct Taxes and, therefore, respondent

had violated Rule 3(1)(i), 3(1)(ii) and 3(1)(iii) of the CCS

(Conduct) Rules, 1964. Aggrieved by the interim order of

the Tribunal, Union of India come to this Court. Again this

Court examined its earlier decisions and said that the

Tribunal or Court can interfere only if on the charged

framed (read with imputation or particulars of the charges,

if any) no misconduct or other irregularity alleged can be

said to have been made out or the charges framed are

contrary to any law and that at that stage the Tribunal had

no jurisdiction to go into the correctness or truth of the

charges. Order of the Tribunal was set aside.

In Dy. Inspector General of Police vs. K.S.

Swaminathan [(1996) 11 SCC 498] a charge memo imputing

misconduct on the part of the respondent, an Inspector of

police, was issued to him. Tamil Nadu Administrative

Tribunal on an application filed by the respondent set aside

the charge memo on the ground that the charges were vague.

On appeal to this Court, it was held that at the stage of

framing of the charge, the statement of facts and the charge

sheet supplied are required to be looked into by the Court

or the tribunal as to the nature of the charges, i.e.,

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whether the statement of facts and material in support

thereof supplied to the delinquent officer would disclose

the alleged misconduct. This Court observed that the

tribunal, therefore, was totally unjustified in going into

the charges at that stage.

In M.S. Bindra vs. Union of India & Ors. [(1998) 7

SCC 310] the appellant was served with an order of

compulsory retirement. His challenge to this order did not

find favour with the Central Administrative Tribunal. On

appeal to this Court it was observed that judicial scrutiny

of any order imposing premature compulsory retirement is

permissible if the order is rather arbitrary or mala fide or

if it is based on no evidence. Then this Court observed as

under :

"While viewing this case from the next angle for

judicial scrutiny, i.e., want of evidence or material to

reach such a conclusion, we may add that want of any

material is almost equivalent to the next situation that

from the available materials, no reasonable man would reach

such a conclusion. While evaluating the materials, the

authority should not altogether ignore the reputation in

which the officer was held till recently. The maxim "nemo

firut repente turpissimus" (no one becomes dishonest all of

a sudden) is not unexceptional but still it is a salutary

guideline to judge human conduct, particularly in the field

of administrative law. The authorities should not keep

their eyes totally closed towards the overall estimation in

which the delinquent officer was held in the recent past by

those who were supervising him earlier. To dunk an officer

into the puddle of "doubtful integrity", it is not enough

that the doubt fringes on a mere hunch. That doubt should

be of such a nature as would reasonably and consciously be

entertainable by a reasonable man on the given material.

Mere possibility is hardly sufficient to assume that it

would have happened. There must be preponderance of

probability for the reasonable man to entertain doubt

regarding that possibility. Only then there is

justification to ram an officer with the lable "doubtful

integrity".

In M/s. Hindustan Steel Ltd. vs. The State Orisa

[AIR 1970 SC 253] the authorities under the Orissa Sales Tax

Act, 1947 had imposed penalty on the appellant. One of the

question before this Court was whether the Tribunal is right

in holding that penalties under Section 12(5) of the Act had

been rightly levied and whether in view of the serious

dispute of the law it cannot be said that there was

sufficient cause for not applying for registration. This

Court then said as under:

"Under the Act penalty may be imposed for failure to

register as a dealer: Section 9(1) read with Section

25(1)(a) of the Act. But the liability to pay penalty does

not arise merely upon proof of default in registering as a

dealer. An order imposing penalty for failure to carry out

a statutory obligation is the result of a quasi-criminal

proceeding, and penalty will not ordinarily be imposed

unless the party obliged either acted deliberately in

defiance of law or was guilty of conduct contumacious or

dishonest, or acted in conscious disregard of its

obligation. Penalty will not also be imposed merely because

it is lawful to do so. Whether penalty should be imposed

for failure to perform a statutory obligation is a matter of

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discretion of the authority to be exercised judicially and

on a consideration of all the relevant circumstances. Even

if a minimum penalty is prescribed, the authority competent

to impose the penalty will be justified in refusing to

impose penalty, when there is a technical or venial breach

of the provisions of the Act or where the breach flows from

a bona fide belief that the offender is not liable to act in

the manner prescribed by the statute. Those in charge of

the affairs of the Company in failing to register the

Company as a dealer acted in the honest and genuine belief

that the Company was not a dealer. Granting that they

erred, no case for imposing penalty was made out."

In the case of Madan Mohan Choudhary vs. State of

Bihar and others (1999 (3) SCC 396), this Court set aside

the order of compulsory retirement of the appellant, a

member of the Bihar Superior Judicial Service, on the ground

that there was no material on record to reasonably form an

opinion that compulsory retirement of the officer was in

public interest.

We may note some more judgments.

In State of Madhya Pradesh vs. Bharat Heavy

Electricals [(1998) 99 ELT 33 (SC)] this Court examined the

validity of Section 7(5) of the Madhya Pradesh Sthaniya

Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976, which

provides for levy of penalty. Earlier the Madhya Pradesh

High Court in a writ petition had held the provisions of the

Act were ultra vires and also violative of Articles 14 and

19 of the Constitution. Sub-section (5) of Section 7 of the

Act relevant for our purpose is as under :

"7. Registered dealers to issue bill etc. stating

that goods sold are local goods. -

(5) Where a registered dealer referred to in

sub-section (1) or sub- section (2) has, in the course of

his business, sold local goods to other registered dealers

and has failed to make the statement referred to in sub-

section (1) [...], it shall be presumed that he has

facilitated the evasion of entry tax on the local goods so

sold and accordingly he shall be liable to pay penalty equal

to ten times the amount of entry tax payable on such goods

as if they were not goods of local origin."

After considering the stand of the State Government

that presumption raised in sub-section (5) of Section 7 was

rebuttable and that the said provision did not provide for a

fixed rate of penalty and that the assessing authority has

discretion to impose reasonable amount of penalty, this

Court held:

"From the aforesaid it follows that Section 7(5) has

to be construed to mean that the presumption contained

therein is rebuttable and secondly the penalty of ten times

the amount of entry tax stipulated therein is only the

maximum amount which could 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 decision of the

High Court that Section 7(5) is ultra vires cannot be

sustained."

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It will be thus seen that once there was a case of

imposition of penalty only the amount of penalty to be

levied was left to the discretion of the assessing authority

on the facts of the case.

In Government of Tamil Nadu vs. K.N. Ramamurthy

(1997 (7) SCC 101) it has been held that failure to exercise

quasi judicial power properly amounts to misconduct. In

this case, the respondent working as Deputy Commercial Tax

Officer was served with the following charges:

"(i) That he failed to analyse the facts involved in

each and every case referred to above;

(ii) that he failed to check the accounts deeply and

thoroughly while making final assessment;

(iii) that he failed to subject the above turnover to

tax originally; and

(iv) that he failed to safeguard government revenue to

a huge extent of Rs.44,850."

These charges were held proved against him and he was

imposed with a punishment of stoppage of increment for three

years with cumulative effect. Against the order of

punishment, the respondent approached the Tamil Nadu

Administrative Tribunal which set aside the disciplinary

proceedings against the respondent. The Tribunal was of the

view that the order of assessment passed by the respondent

was in his quasi judicial capacity and there were hierarchy

of authorities under the General Sales Tax Act to correct

his order if it was erroneous. Tribunal held the

disciplinary proceedings initiated against the respondent

are warranted and set aside the punishment imposed on him.

In appeal by the Government of Tamil Nadu against the

judgment of the Tribunal this Court referred to certain

decisions in the cases of Union of India vs. Upendra Singh

(1994 (3) SCC 357); Union of India vs. A.N. Saxena (1992

(3) SCC 124); and Union of India vs. K.K. Dhawan (1993)

(2) SCC 56). In the case of Upendra Singh, this Court had

ruled that the Tribunal had no jurisdiction to go into the

correctness of truth of the charges and the Tribunal cannot

take over the functions of the disciplinary authority. This

Court had also observed that the function of the

court/Tribunal is one of judicial review, the parameters of

which are repeatedly laid down by this Court. A Tribunal or

court can interfere only if the charge (read with imputation

or particulars of the charge, if any) no misconduct or other

irregularity alleged can be said to have been made out or

the charge framed is contrary to any law. This Court said

that the finding accepted by the disciplinary authority was

to the effect that by the act of negligence in making the

assessment the delinquent caused loss to the government

exchequer to the extent of Rs.44,850/- and that that finding

of the disciplinary authority was not open to challenge on

the facts of the case.

In State of Punjab and ors. vs. Ram Singh Ex-

Constable (1992 (4) SCC 54) this Court referred to the

definition of 'misconduct' as given in Black's Law

Dictionary and Aiyar's Law Lexicon and said as under:-

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"Thus it could be seen that the word 'misconduct'

though not capable of precise definition, on reflection

receives its connotation from the context, the delinquency

in its performance and its effect on the discipline and the

nature of the duty. It may involve moral turpitude, it must

be improper or wrong behaviour; unlawful behaviour, willful

in character; forbidden act, a transgression of established

and definite rule of action or code of conduct but not mere

error of judgment, carelessness or negligence in performance

of the duty; the act complained of bears forbidden quality

or character. Its ambit has to be construed with reference

to the subject matter and the context wherein the term

occurs, regard being had to the scope of the statute and the

public purpose it seeks to serve."

Keeping in view the provisions of law and guidelines

led by various judgments of this Court, we may now refer to

the Article of Charge given to the appellant. It reads as

under :

"Shri Z.B. Nagarkar while working as Collector,

Central Excise, Nagpur (now redesignated as Commissioner of

Central Excise) has passed an Order-in-Original No.20/95

dated 20.03.95 in which he had favoured M/s. Hari Vishnu

Packaging Ltd., Nagpur by not imposing any penalty on the

said party even though he had held that M/s. Hari Vishnu

Packaging Ltd. had clandestinely manufactured and cleared

the excisable goods and evaded the excise duty wilfully.

Shri Nagarkar has thus failed to maintain absolute integrity

and devotion to duty and acted in a manner unbecoming of a

Govt. Servant and contravened Rule 3(1)(i) and (ii) and

(iii) of the CCS (Conduct) Rules, 1964."

Statement of imputations of misconduct or misbehaviour

in support of the article of charge briefly refers to the

show cause notice issued to HVPL - the assessee - by the

appellant and his Orders-in- Original as adjudicating

authority under the Act. Reference has also been made to

the explanation submitted by the appellant when he was asked

to explain as to why he did not think it necessary to impose

a penalty on HVPL - the assessee. In rejecting the

explanation of the appellant, the statement of imputations

of misconduct concludes :

"The judgments quoted by Shri Nagarkar do not appear

to be relevant to the case of M/s. HVPL as these judgments

refer to those cases where there are technical

lapses/violations of the law; whereas in the instant case,

Shri Nagarkar himself had reached the conclusion that M/s.

HVPL had clandestinely cleared the goods with an intention

to evade payment of duty. He had also held that M/s.

Delite plastics Industries had actively supported M/s. HVPL

to evade the duty. it was based on the findings that he had

ordered confiscation of the goods and confirmed the duty.

Therefore, when the goods were confiscated and duty was

confirmed, appropriate penalty should have been imposed by

Shri Nagarkar on M/s. HVPL. The above action of Shri

Nagarkar amounts to unjustified favour shown by him to M/s.

HVPL."

Two principal issues arise for our consideration: (1)

if levy of penalty under Rule 173Q was obligatory and (2)

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was there enough background material for the Central

Government to form a prima facie opinion to proceed against

the officer on the charge of misconduct on his failure to

levy penalty under Rule 173Q. Appellant has contended that

it is only now after insertion of Section 11AC in the Act

that levy of penalty has become mandatory and that it was

not so under Rule 173Q. This contention does not appear to

be correct. In both Rule 173Q and Section 11AC the language

is somewhat similar. Under Rule 173Q "such goods shall be

liable to confiscation" and the person concerned "shall be

liable to penalty" not exceeding three times the value of

excisable goods or five thousand rupees whichever is

greater. Under Section 11AC the person, who is liable to

pay duty on the excisable goods as determined "shall also be

liable to pay penalty equal to the duty so determined".

What is the significance of the word "liable" used both in

Rule 173Q and Section 11AC? Under Rule 173Q apart from

confiscation of the goods the person concerned is liable to

penalty. Under Section 11AC the word "also" has been used

but that does not appear to be quite material in

interpreting the word "liable" and if liability to pay

penalty has to be fixed by the adjudicating authority. The

word "liable" in the Concise Oxford Dictionary means,

"legally bound, subject to a tax or penalty, under an

obligation". In Black's Law Dictionary (sixth edition), the

word "liable' means, "bound or obliged in law or equity;

responsible; chargeable; answerable; compellable to make

satisfaction, compensation, or restitution.... Obligated;

accountable for or chargeable with. Condition of being

bound to respond because a wrong has occurred. Condition

out of which a legal liability might arise.... Justly or

legally responsible or answerable".

When we examine Rule 173Q it does appear to us that

apart from the offending goods which are liable to

confiscation the person concerned with that shall be liable

to penalty upto the amount specified in the Rule. It is

difficult to accept the argument of the appellant that levy

of penalty is discretionary. It is only the amount of

penalty which is discretionary. Both things are necessary:

(1) goods are liable to confiscation and (2) person

concerned is liable to penalty. We may contrast the

provisions of Rule 173Q and Section 11AC with Section 271 of

the Income-tax Atc, 1961. This Section, prior to amendment

in 1988, stood as under :

"Failure to furnish returns, comply with notices,

concealment of income, etc. 271. (1) If the Income Tax

Officer or the Appellate Assistant Commissioner or the

Commissioner (Appeals) in the course of any proceedings

under this Act is satisfied that any person -

(a) has failed to furnish the return of total income

which he was required to furnish under sub-section (1) of

Section 139 or by notice given under sub-section (2) of

section 139 or section 148 or has failed to furnish it

within the time allowed and in the manner required by sub-

section (1) of section 139 or by such notice as the case may

be, or

(b) has without reasonable cause 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

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(c) has concealed the particulars of his income or

deliberately furnished inaccurate particulars of such

income,

he may direct that such person shall pay by way of

penalty,--

(i) in the cases referred to in clause (a),-

(a) in the case of a person referred to in sub-section

(4A) of section 139, where the total income in respect of

which he is assessable as a representative assessee does not

exceed the maximum amount which is not chargeable to

income-tax, a sum not exceeding one per cent of the total

income computed under this Act without giving effect to the

provisions of sections 11 and 12 for each year or part

thereof during which the default continued;

(b) in any other case, in addition to the amount of

the tax, if any, payable by him, a sum equal to two per cent

of the assessed tax for every month during which the default

continued.

Explanation.- In this clause "assessed tax" means tax

as reduced by the sum, if any, deducted at source under

Chapter XVII-B or paid in advance under Chapter XVII-C;

(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 ten per cent but which shall not exceed fifty per

cent of the amount of the tax, if any, which would have been

avoided if the income returned by such person had been

accepted as the correct income;

(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 twice, 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 : ..."

It would, thus, be seen that under provisions of

Section 271 of the Income Tax Act in the first instance

there is a discretion with the assessing authority whether

to impose any penalty or not and if the assessing authority

finds that it is a case for imposition of penalty then it

has no discretion in the matter and the certain amount of

penalty depending on the facts and circumstances of each

case has to be imposed subject to the maximum limit

mentioned in the section.

Now when show-cause notice was issued to the assessee

he was also asked to show cause as to why penalty be not

imposed upon him. The stand of the Union of India before

us, as stated in the counter affidavit, is : "It was

observed that the petitioner in his capacity as adjudicating

authority came to the conclusion that the party M/s. HVPL

had clandestinely cleared the goods with an intention to

evade the payment of duty. he also ordered for the

confiscation of the goods and confirmed the duty. In these

circumstances, he would have imposed appropriate penalty on

the party. It was under these circumstances, that the

impugned charge memo was issued." And further it appeared

"that the discretion in this regard did not appear to have

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been exercised clearly and reasonably". It is not that

non-levy of penalty by the appellant in his adjudication

order was mere omission. Order is silent as to why he did

not think it fit to impose any penalty on the assessee. In

the case of the transporter who was also proceeded against

the appellant did not impose any penalty as he said he

(transporter) being the owner of a public vehicle. The

transporter was merely cautioned "not to repeat such an act,

as the same would be viewed seriously in future". The third

noticee was also cautioned. Rather non-levy of penalty by

the appellant on the assessee was intentional as he himself

in his explanation dated November 18, 1996 said : (1) On

going through the records of the case he was aware that

there was no conclusive evidence against the assessee and

the material evidence on record was not sufficient to

sustain the charges levelled against the party. (2) He took

a pro-revenue stance in this case although there was perhaps

a case, at least an arguable one, in their favour and his

conclusion regarding mens rea on the part of the assessee

was also based purely on circumstantial evidence; and that

it was a weak case for the department which he could uphold

only on placing a little extra reliance on evidence on

record. (3) It would have been unfair to impose penalty on

the assessee since the penal provisions should be invoked

only in cases where the adjudicator is fully convinced with

the material and there is direct evidence substantiating the

guilt of the notice and this view was fully supported by the

judgments of the High Court, some High Courts and the

Tribunal. (4) He had a nagging feeling that had he imposed

any penalty on the assessee, they would have gone on appeal

before the Appellant Tribunal and the department would have

not only lost the case in terms of penal action but probably

the confirmation of the duty demanded could have been

jeopardized.

The question is : If such a stance by the appellant

was to "favour" the assessee or the officer was rightly of

the view that it was not a case of levy of penalty. It is a

quasi judicial order. Merely because penalty imposable has

not been imposed, which was obligatory for the officer to

impose, could it be said that if it is a case of misconduct

and he is liable to be proceeded against? The officer did

impose the excise duty and also ordered confiscation of the

goods. What is the evidence before the authority to come to

prima facie view of levying charge of misconduct on the

officer? He was served with the memorandum dated September

2, 1997. It was accompanied with annexure 1 (Article of

charge), annexure II (Statement of Imputations of misconduct

or misbehaviour in support of the Article of Charge),

annexure III (List of documents) and annexure IV (List of

witnesses). Article of charge we have reproduced above.

Statement of Imputations of misconduct or misbehaviour

referred to the Order in Original passed by the officer and

his explanation as to why he did not think it fit to impose

penalty. List of documents mentions only three documents,

namely, Order-in- original, (2) order of the Board under

Section 129 of the Act for filing appeal and (3) explanation

dated November 18, 1996 of the officer. There is no witness

mentioned in the list of witnesses. So the Order in

Original, the explanation of the officer and the direction

of the Board for filing appeal are the basis for the charge

of misconduct or misbehaviour.

Penalty to be imposed has to be in commensurate with

the gravity of the offence and the extent of the evasion.

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In the present case, penalty could have been justified.

Appellant was, however, of the view that imposition of

penalty was not mandatory. He could have formed such a

view. Under Section 325 Indian Penal Code, a person found

guilty "shall be punished with imprisonment of either

description for a term which may extend to seven years, and

shall also be liable to fine". Section 63 IPC provides that

where no sum is expressed to which a fine may extend, the

amount of fine to which the offender is liable is unlimited,

but shall not be excessive. A single Judge of the Patna

High Court in Tetar Gope vs. Ganauri Gope [AIR 1968 Patna

287] took the view that expression "shall also liable to

fine" in Section 325 IPC does not mean that a sentence of

fine must be imposed in every case of conviction in that

section. He said :

"Such an expression has been used in the penal Code

only in connection with those offences where the legislature

has provided that a sentence of imprisonment is compulsory.

In regard to such offences, the legislature has left a

discretion in the Court to impose also a sentence of fine in

appropriate cases in addition to the imposition of a

sentence of imprisonment which alone is obligatory."

We do not think that the view expressed by the Patna

High Court is correct as it would appear from the language

of the section that sentences of both imprisonment and fine

are imperative. It is the extent of fine which has been

left to the discretion of the court. In Rajasthan

Pharmaceuticals Laboratory, Bangalore & Ors. vs. State of

Karnataka [(1981) 1 SCC 645] this Court has taken the view

that imprisonment and fine both are imperative when the

expression "shall also be liable to fine" was used under

Section 34 of the Drug and Cosmetics Act, 1940. In that

case, this Court was considering Section 27 of the Drugs and

Cosmetics Act, 1940, which enumerates the penalties for

illegal manufacture, sale, etc., of drugs and is as under -

"Whoever himself or by any other person on his behalf

manufacture for sale, sells, stocks or exhibits for sale or

distributes -

(a) any drug -

(i) .....

(ii) without a valid licence as required under clause

(c) of Section 18,

shall be punishable with imprisonment for a term which

shall not be less than one year but which may extend to ten

years and shall also be liable to fine :

Provided that the court may, for any special reasons

to be recorded in writing, impose a sentence of imprisonment

of less than one year:...."

This Court said that the High Court imposed a fine of

two thousand rupees on each of the three appellants for the

offence under Section 18(c) of the Act when Section

27(a)(ii) makes a sentence of imprisonment of not less than

one year compulsory for such offence in addition to fine

unless for special reasons a sentence of imprisonment for

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lesser period was warranted. It would, thus appear that

this Court was of the opinion that in such a case the

imprisonment and fine both are imperative.

When we talk of negligence in a quasi judicial

adjudication, it is not negligence perceived as carelessness

inadvertance or omission but as culpable negligence. This

is how this court in State of Punjab & Ors. & Ors. vs.

Ram Singh Ex-Constable [(1992) 4 SCC 54] interpreted

'misconduct' not coming within the purview of mere error in

judgment, carelessness or negligence in performance of the

duty. In the case of K.K. Dhawan (1993 (2) SCC 56), the

allegation was of conferring undue favour upon the

assessees. It was not a case of negligence as such. In

Upendra Singh's case (1994 (3) SCC 357), the charge was that

he gave illegal and improper directions to the assessing

officer in order to unduly favour the assessee. Case of

K.S. Swaminathan (1996 (11) SCC 498), was not where the

respondent was acting in any quasi judicial capacity. This

Court said that at the stage of framing of the charge the

statement of facts and the charge-sheet supplied are

required to be looked into by the Court to see whether they

support the charge of the alleged misconduct. In M.S.

Bindra's case (1998 (7) SCC 310) where the appellant was

compulsorily retired this Court said that judicial scrutiny

of an order imposing premature compulsory retirement is

permissible if the order is arbitrary or mala fide or based

on no evidence. Again in the case of Madan Mohan Choudhary

(1999 (3) SCC 396), which was also a case of compulsory

retirement this Court said that there should exist material

on record to reasonably form an opinion that compulsory

retirement of the officer was in public interest. In K.N.

Ramamurthy's case (1997 (7) SCC 101), it was certainly a

case of culpable negligence. One of the charges was that th

e officer had failed to safeguard Government revenue. In

Hindustan Steel Ltd.'s case (AIR 1970 SC 253), it was said

that where proceedings are quasi judicial penalty will not

ordinarily be imposed unless the party charged had acted

deliberately in defiance of law or was guilty of conduct

contumacious or dishonest or acted in conscious disregard of

its obligation. This Court has said that the penalty will

not also be imposed merely because it is lawful so to do.

In the present case, it is not that the appellant did not

impose penalty because of any negligence on his part but he

said it was not a case of imposition of penalty. We are,

however, of the view that in a case like this which was

being adjudicated upon by the appellant imposition of

penalty was imperative. But then, there is nothing wrong or

improper on the part of the appellant to form an opinion

that imposition of penalty was not mandatory. We have

noticed that Patna High Court while interpreting Section 325

IPC held that imposition of penalty was not mandatory which

again we have said is not a correct view to take. A wrong

interpretation of law cannot be a ground for misconduct. Of

course it is a different matter altogether if it is

deliberate and actuated by mala fides.

When penalty is not levied, the assessee certainly

benefits. But it cannot be said that by not levying the

penalty the officer has favoured the assessee or shown undue

favour to him. There has to be some basis for the

disciplinary authority to reach such a conclusion even prima

facie. Record in the present case does not show if the

disciplinary authority had any information within its

possession from where it could form an opinion that the

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appellant showed 'favour' to the assessee by not imposing

the penalty. He may have wrongly exercised his

jurisdiction. But that wrong can be corrected in appeal.

That cannot always form basis for initiating disciplinary

proceedings for an officer while he is acting as quasi

judicial authority. It must be kept in mind that being a

quasi judicial authority, he is always subject to judicial

supervision in appeal.

Initiation of disciplinary proceedings against an

officer cannot take place on an information which is vague

or indefinite. Suspicion has no role to play in such

matter. There must exist reasonable basis for the

disciplinary authority to proceed against the delinquent

officer. Merely because penalty was not imposed and the

Board in the exercise of its power directed filing of appeal

against that order in the the Appellate Tribunal could not

be enough to proceed against the appellant. There is no

other instance to show that in similar case the appellant

invariably imposed penalty.

If, every error of law were to constitute a charge of

misconduct, it would impinge upon the independent

functioning of quasi judicial officers like the appellant.

Since in sum and substance misconduct is sought to be

inferred by the appellant having committed an error of law,

the charge-sheet on the face of it does not proceed on any

legal premise rendering it liable to be quashed. In other

words, to maintain any charge-sheet against a quasi judicial

authority something more has to be alleged than a mere

mistake of law, e.g., in the nature of some extraneous

consideration influencing the quasi judicial order. Since

nothing of the sort is alleged herein the impugned

charge-sheet is rendered illegal. The charge- sheet, if

sustained, will thus impinge upon the confidence and

independent functioning of a quasi judicial authority. The

entire system of administrative adjudication whereunder

quasi judicial powers are conferred on administrative

authorities, would fall into disrepute if officers

performing such functions are inhibited in performing their

functions without fear or favour because of the constant

threat of disciplinary proceedings.

Considering whole aspects of the matter, we are of the

view that it was not a case for initiation of any

disciplinary proceedings against the appellant. Charge of

misconduct against him was not proper. It has to be

quashed.

Before concluding, there are two aspects of the matter

which we wish to point out. These are :

1. In the counter affidavit filed by the Union of

India, it has been said that the special leave petition

filed by the appellant "is totally misconceived, premature

and highly irresponsible". In the whole body of counter

affidavit strong language has been used. Union of India is

not a private litigant. Such language in the pleading

should be avoided. One can be firm without being impolite.

2. There is a charge of misconduct against the

Collector (now Commissioner) of Central Excise. While

disciplinary proceedings are pending against him, he is

transferred to the National Academy of Custom Excise and

Narcotics to guide the probationers. it is certainly a

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paradoxical situation that a man who is not fit to hold the

post of Collector is fit enough to impart training to the

probationers entering the service. Best talent should be

sent to the academy to teach the probationers. Posting to

the academy should be considered as an honour and not

punishment. Our comment is no reflection on the appellant

herein as we have set aside the initiation of disciplinary

proceedings against him.

With these observations, the appeal is allowed with

costs. The Order of the Central Administrative Tribunal

dated August 12, 1998 and the impugned judgment dated

September 7, 1998] of the High Court are set aside. Article

of Charge issued against the appellant is quashed.