Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) (Favoring assessee)
Associated Cement Co. Ltd. Vs. CTO (1981) 4 SCC 578 (favoring assessee)
Director of Enforcement Vs. M.C.T.M. Corporation (P) Ltd. (1996) 2 SCC 471,(favoring revenue)
Union of India Vs. Dharamendra Textile Processors (2008) 13 SCC 369 (favoring revenue)
CCE Vs. Pepsi Foods Ltd. (2011) 1 SCC 601 (favoring asseessee)
Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) Held that
An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal
proceedings, 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 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.”
Supreme Court in a judgment reported as Grauer & Weil (India) Ltd. Vs. CCE (1995) 1 SCC 77 relied upon its earlier judgment in Hindustan Steel Ltd.(supra).
Associated Cement Co. Ltd. Vs. CTO (1981) 4 SCC 578
Supreme Court noticed that tax, interest and penalty are three different concepts. Penalty ordinarily becomes payable when it is found that an assessee has willfully violated any of the provisions off the taxing statute.
Director of Enforcement Vs. M.C.T.M. Corporation (P) Ltd. (1996) 2 SCC 471,
the Supreme Court observed that expression ‘penalty’ is a word of wide significance. Sometimes, it means recovery of an amount as a penal measure even in civil proceedings. An exaction which is not compensatory in character is also termed as a ‘penalty’. When penalty is imposed by an adjudicating officer, it is done so in ‘adjudicatory proceedings’ and not by way of fine as a result of ‘prosecution’ of an ‘accused’ for commission of an ‘offence’ in a criminal court.
Union of India Vs. Dharamendra Textile Processors (2008) 13 SCC 369
the Larger Bench of the Supreme Court approved the judgment in Chairman, SEBI Vs. Shriram Mutual Fund (2006) 5 SCC 361 and held that the penalty under Section 271(1)(c) of the Income Tax Act is a civil liability and willful concealment is not an essential ingredient for attracting civil liability, as is the case in the matter of prosecution under Section 276-C of the Income Tax Act
In Shriram Mutual Fund’s case (supra), the Court held that it is not necessary that mens rea must be proved before penalty can be imposed under the provisions of Section 15 of the Securities and Exchange Board of India Act, 1992. The Court held that once the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary
The Supreme Court observed as under:
“29. Under a close scrutiny of Sections 15-D(b) and 15-E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence, we are of the view that once the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary. Discretion has been exercised by the adjudicating officer as is evident from imposition of lesser penalty than what could have been imposed under the
provisions. The intention of the parties is wholly irrelevant since there has been a clear violation of the statutory Regulations and provisions repetitively, covering a period of 6 quarters. Hence, we hold that the respondents have wilfully violated statutory provisions with impunity and hence the imposition of penalty was fully justified.”
CIT v. Atul Mohan Bindal [2009] 317 ITR 1/183 Taxman 444 (SC)
The decision in Dharamendra Textile [2008] 306 ITR 277/174 Taxman 571 must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. That is what Dharamendra Textile decides.
CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322(SC)
law laid down in the Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218 (SC) as to the meaning of the word "concealment" and "inaccurate" continues to be a good law because what was overruled in the Dharamendra Textile Processors's case (supra) was only that part in Dilip N. Shroff's case (supra) where it was held that mens rea was an essential requirement of penalty under section 271(1)(c). The hon'ble apex court also observed that if the contention of the Revenue is accepted then in case of every return where the claim is not accepted by the Assessing Officer for any reason, the assessee, will invite the penalty under section 271(1)(c). This is clearly not the intendment of the Legislature.
CCE Vs. Pepsi Foods Ltd. (2011) 1 SCC 601
A three Judges’ Bench examined the provisions of Section 11-AC of the Central Excise Act, 1944. The Court held that criminal intent or ‘mens rea’ is a necessary constituent
21. From a perusal of the aforesaid section, especially the underlined portion, it is clear that in order to attract the penalty provision under Section 11-AC, criminal intent or “mens rea” is a necessary constituent.
In the reply to the show-cause notice the stand which has been taken by the respondent is that it has been paying the duty and there is no mala fide intention on its part to evade the payment of duty. The further stand
is that the goods were cleared from the factory only on payment of duty. This stand which has been taken in the reply to the show-cause notices was not found to be incorrect in the order-in-original. As such the
imposition of penalty of the equal amount of duty under the order-inoriginal cannot be sustained.
22. It is well settled that when the statutes create an offence and an ingredient of the offence is a deliberate attempt to evade duty either by fraud or misrepresentation, the statute requires “mens rea” as a necessary
constituent of such an offence. But when factually no fraud or suppression or misstatement is alleged by the Revenue against the respondent in the show-cause notice the imposition of penalty under Section 11-AC is wholly impermissible.
Associated Cement Co. Ltd. Vs. CTO (1981) 4 SCC 578 (favoring assessee)
Director of Enforcement Vs. M.C.T.M. Corporation (P) Ltd. (1996) 2 SCC 471,(favoring revenue)
Union of India Vs. Dharamendra Textile Processors (2008) 13 SCC 369 (favoring revenue)
CCE Vs. Pepsi Foods Ltd. (2011) 1 SCC 601 (favoring asseessee)
Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC) Held that
An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal
proceedings, 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 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.”
Supreme Court in a judgment reported as Grauer & Weil (India) Ltd. Vs. CCE (1995) 1 SCC 77 relied upon its earlier judgment in Hindustan Steel Ltd.(supra).
Associated Cement Co. Ltd. Vs. CTO (1981) 4 SCC 578
Supreme Court noticed that tax, interest and penalty are three different concepts. Penalty ordinarily becomes payable when it is found that an assessee has willfully violated any of the provisions off the taxing statute.
Director of Enforcement Vs. M.C.T.M. Corporation (P) Ltd. (1996) 2 SCC 471,
the Supreme Court observed that expression ‘penalty’ is a word of wide significance. Sometimes, it means recovery of an amount as a penal measure even in civil proceedings. An exaction which is not compensatory in character is also termed as a ‘penalty’. When penalty is imposed by an adjudicating officer, it is done so in ‘adjudicatory proceedings’ and not by way of fine as a result of ‘prosecution’ of an ‘accused’ for commission of an ‘offence’ in a criminal court.
Union of India Vs. Dharamendra Textile Processors (2008) 13 SCC 369
the Larger Bench of the Supreme Court approved the judgment in Chairman, SEBI Vs. Shriram Mutual Fund (2006) 5 SCC 361 and held that the penalty under Section 271(1)(c) of the Income Tax Act is a civil liability and willful concealment is not an essential ingredient for attracting civil liability, as is the case in the matter of prosecution under Section 276-C of the Income Tax Act
In Shriram Mutual Fund’s case (supra), the Court held that it is not necessary that mens rea must be proved before penalty can be imposed under the provisions of Section 15 of the Securities and Exchange Board of India Act, 1992. The Court held that once the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary
The Supreme Court observed as under:
“29. Under a close scrutiny of Sections 15-D(b) and 15-E of the Act, there is nothing which requires that mens rea must be proved before penalty can be imposed under these provisions. Hence, we are of the view that once the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary. Discretion has been exercised by the adjudicating officer as is evident from imposition of lesser penalty than what could have been imposed under the
provisions. The intention of the parties is wholly irrelevant since there has been a clear violation of the statutory Regulations and provisions repetitively, covering a period of 6 quarters. Hence, we hold that the respondents have wilfully violated statutory provisions with impunity and hence the imposition of penalty was fully justified.”
CIT v. Atul Mohan Bindal [2009] 317 ITR 1/183 Taxman 444 (SC)
The decision in Dharamendra Textile [2008] 306 ITR 277/174 Taxman 571 must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. That is what Dharamendra Textile decides.
CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322(SC)
law laid down in the Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519/161 Taxman 218 (SC) as to the meaning of the word "concealment" and "inaccurate" continues to be a good law because what was overruled in the Dharamendra Textile Processors's case (supra) was only that part in Dilip N. Shroff's case (supra) where it was held that mens rea was an essential requirement of penalty under section 271(1)(c). The hon'ble apex court also observed that if the contention of the Revenue is accepted then in case of every return where the claim is not accepted by the Assessing Officer for any reason, the assessee, will invite the penalty under section 271(1)(c). This is clearly not the intendment of the Legislature.
CCE Vs. Pepsi Foods Ltd. (2011) 1 SCC 601
A three Judges’ Bench examined the provisions of Section 11-AC of the Central Excise Act, 1944. The Court held that criminal intent or ‘mens rea’ is a necessary constituent
21. From a perusal of the aforesaid section, especially the underlined portion, it is clear that in order to attract the penalty provision under Section 11-AC, criminal intent or “mens rea” is a necessary constituent.
In the reply to the show-cause notice the stand which has been taken by the respondent is that it has been paying the duty and there is no mala fide intention on its part to evade the payment of duty. The further stand
is that the goods were cleared from the factory only on payment of duty. This stand which has been taken in the reply to the show-cause notices was not found to be incorrect in the order-in-original. As such the
imposition of penalty of the equal amount of duty under the order-inoriginal cannot be sustained.
22. It is well settled that when the statutes create an offence and an ingredient of the offence is a deliberate attempt to evade duty either by fraud or misrepresentation, the statute requires “mens rea” as a necessary
constituent of such an offence. But when factually no fraud or suppression or misstatement is alleged by the Revenue against the respondent in the show-cause notice the imposition of penalty under Section 11-AC is wholly impermissible.
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