Holding

For the period before the 1994 amendment, the Additional Duties Act did not create any penal or confiscation power, so the Central Excise Act could not be used to impose penalty or forfeiture, rendering the confiscation and penalty unlawful.

Summary

The Collector of Central Excise assessed additional duty on Orient Fabrics for alleged mis‑disclosure and undervaluation of fabric, also ordered confiscation of 35 bales and imposed a penalty. The Central Excise and Gold (Control) Appellate Tribunal allowed the appeals, holding that the Central Excise Act could not be used for confiscation in breach of the Additional Duties Act. The Collector appealed, arguing that penalty and confiscation were permissible under the Act, relying on Khemka and Ashok Fashion cases. The Supreme Court examined Section 3(3) of the Additional Duties Act as it stood before the 1994 amendment and held that it did not create any penal or offence provision, and therefore the Central Excise Act could not be invoked for confiscation or penalty. The Court further held that the 1994 amendment, which inserted “offences and penalties,” could not be applied retrospectively to the 1987 cause of action. Consequently, the confiscation and penalty were without legal authority and the Tribunal’s order was upheld, dismissing the appeal.

Issues considered

Whether penalty proceedings or forfeiture of goods for non‑payment of additional duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 can be imposed by invoking the provisions of the Central Excise Act, 1944 when the original statute did not contain offence or penalty provisions.
Whether the 1994 amendment inserting ‘offences and penalties’ into Section 3(3) of the Additional Duties Act can be applied retrospectively to actions arising before the amendment.
Whether the Tribunal erred in allowing confiscation and penalty without a clear authority of law.

Legislation cited

Additional Duties of Excise (Goods of Special Importance) Act, 1957s. 3(3)
Central Excise Act, 1944
Constitution of Indias. Article 265
Finance Act, 1994s. 63(a)

Subjects

Additional Duties ActPenaltyConfiscationExpropriatory legislationRetrospective amendmentCentral Excise ActStrict constructionTax lawConstitutional mandate

Judgment

COLLECTOR OF CENTRAL EXCISE, AHMEDABAD A
v.
ORIENT F AB RI CS PVT. LTD.

NOVEMBER 25, 2003

[V.N. KHARE, CJ., S.B. SINHA AND
B
DR. AR. LAKSHMANAN, JJ.]

Additional Duties of Excise (Goods ofSpecial Importance) Act, 1957.

S. 3(3) (as stood prior to 1994 amendment).!-Non-payment of C
additional duty-Penalty proceedings or forfeiture ofgoods-Permissibility
of-Assessee alleged to have misdisclosed composition of goods and
undervalued them-Revenue imposing penalty for non-payment' of duty
and holding the goods liable to be forfeited-Tribunal holding that
provisions of Central Excise Act so far as they relate to confiscation cannot D
be made applicable for breach ofprovisions of the Act-Held, the breach
of the provisions of the Act has not been made penal or an offence and
no power has been given to confiscate the goods-Cause of action arose
prior to amendment and as such the amended provision has no application
to facts of the case-Confiscation proceedings taken against the assessee
and the penalty imposed upon it were totally without any authority of law E
and were rightly set aside by Tribunal.

Mis. Khemka & Co. (Agencies) Pvt. Ltd. v. State of Maharashtra,
(1975) 2 sec 22, followed.
F
Bairam Kumawat v. Union ofIndia and Ors., (2003) 7 SCC 628 and
Pioneer Silk Mills Pvt. Ltd. v. Union of India, (1995) 80 ELT 507 (Del.),
referred to.

Commissioner of Central Excise v. Ashok Fashion Ltd., (2002) 141 G
E.L.T. 606 (Gujarat), disapproved.

Interpretation of Statutes :

Provisions of statute relating to excise law-Interpretation of-Held,
Expropriatory legislation must be strictly construed-A penal stalule must "H
243
244 SUPREME COURT REPORTS [2003) SUPP. 6 S.C.R.
A receive strict construction.

Mis. D.L.F. Qutab Enclave Complex Educational Charitable Trust v.
State of Haryana and Ors., AIR (2003) SC 1648, relied on.

B CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4914 of
1997.

From the Judgment and Order dated 10.2.97 of the Central Excise
Customs and Gold (Control) Appellate Tribunal, New Delhi in F.0. No. 'i

237 of 1997-D.
c
WITH

C.A. No. 1576 of 1998.

S.R. Bhat and Ms. Lalit Mohini Bhat for B.Krishna Prasad for the
D Appellant.

P.C. Jain, Rajesh Kumar for the Respondent in C.A. No. 4914/97.

The following Order of the Court was delivered.
E
The short question that arises for our consideration in these appeals,
which arises from the judgments and orders dated 10.2.1997 and 26.3.1996,
as regards jurisdiction of the authorities under the Central Excise Act,
whether it is permissible to resort to penalty proceedings or forfeiture of
F goods for non-payment of additional duty in terms of the Additional Duties
of Excise (Goods of Special Importance) Act, 1957 (for short 'the Act')
by taking recourse to the provisions of the Central Excise Act and Rules
framed thereunder.

The respondents herein carry on business of manufacture of man
G made fabrics. They have alleged to have misdisclosed the composition of
certain sorts of fabrics. They were further alleged to have under valued
goods by not paying duty on the amount realised through debit notes. The
Collector, by his order dated 17th November, 1987, confirmed the levy of
duty, amounting to Rs. 1,19,453,59. The Collector held that 35 bales of
H Fabric of Sort Nos. 1200 and 1300 are liable to be confiscated, but since

I
--

C.C.E. v. ORIENT FABRICS PVT. LTD. 245

the goods had already been released, he appropriated a sum of Rs. 10,000 A ·
tow~rds the value of g·oods. He also imposed the penalty of Rs. 50,000.
Aggrieved, the respondents prefen-ed appeals before the Central Excise and
Gold (Control) Appellate Tribunal.

The Tribunal relying upon the decision in the case of Pioneer St/k B
Mills Pvt. Ltd. v. Union of India, reported in (I 995) 80 E.L.T. 507 (Del.),
allowed the appeals, holding that the provisions of Central Excise Act and
the Rules made thereunder, so far as they relate to confiscation cannot be
made applicable for the breach of provisions of the Act. It is against the
said judgment and order of the Tribunal, the appellant is in appeal before
us. c
r
Mr. S.R. Bhat, learned counsel appearing for the appellant, urged that
the view taken by the Tribunal in allowing the appeals was erroneous
inasmuch as it is contrary to the decisions in the case of Mis. Khemka &
Co. (Agencies) Pvt. Ltd. v. State ofMaharashtra, repo1ted in [1975] 2 sec D
22 and Commissioner of Central Excuse v. Ashok Fashion Ltd., reported
in (2002) 141 E.L.T. 606 (Gujarat).

In order to appreciate the issue, it is relevant to set out the sub-section
(3) of Section 3 of the Act, as applicable in this matter and which runs
as under : E
,.
"SECTION 3 : Levy and collection of additional duties :

(1) ............... .

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

(3) The provisions of the Central Excises and Salt Act, 1944
and the rules made thereunder including those relating to refunds
and exemptions from duty shall, so far as may be, apply in relation
to the levy and collection of the additional duties as they apply G
in relation to the levy and collection of the duties of excise on the
goods specified in sub-section (1 )."

A perusal of the said provision shows that the breach of provision of
the Act has not been made penal or an offence and no power has been given H
246 SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.

A to confiscate the goods. It only provides for application of the procedural
provisions of the Central Excises and Salt Act, 1944 and the Rules made
thereunder. It is_ no longer res integra that when the breach of.the provision
of the Act is penal in nature or a penalty is imposed by way of additional .
tax, the constitutional mandate requires a clear authority of law for
B imposition for the same. Article 265 of the Constitution provides that no
tax shall be levied or collected except by authority of law. The authority
has to be specific and explicit ,and expressly provided. The Act created
liability for additional duty for excise, but created no liability for any
penalty. That being so, the confiscation proceedings against the respondents
were unwarranted and without authority of law.
c
The Parliament by reason of Section 63(a) of the Finance Act, 1994
(Act No. 32 of 1994) substituted sub-section (3) of Section 3 of the said
Act, which now reads as under :

D "3. Levy and collection of Additional Duties :

(1) .............. .

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

E (3) The provisions of the Central Excise Act, 1944 (I of
1944), and the rules made thereunder, including those relating to ..
refunds, exemptions from duty, offences and penalties, shall, so
far as may. be, apply in relation to the levy and collection of the
additional duties as they apply in relation to the levy and
collection of the duties of excise on the goods specified in sub-
F
section (I)."

A comparison of the amended provisions with the unamended ones
would clearly demonstrate that the words 'offences and penalties' have
consciously been inserted therein. The cause of action for imposing the
G penalty and directions of confiscation arose in the present case in they year
1987. The amended Act, therefore, has no application to the fa£ts of this
case.

The Gujarat High Court in Ashok Feshion Ltd. (supra) although took
H notice of the fact that the cause of action therein arose in the year 1993,
C.C.E. v. ORIENT FABRICS PVT. LTD. 247

but inadvertently or otherwise noticed the amended provisions of. sub- A
section (3) of Section 3. of the Act. lt furthermore although noticed the
decision of Mis. Khemka & Co. (Agencies) Pvt. Ltd. (supra), as would
appear from the discussion made hereinafter, but chose to follow the
minority decision and not the majority one.
B
ln Mis .. Khemka & Co. (Agencies) Pvt. Ltd. (supra), this Court·
categorically laid down paras 25 and 26, which runs as under :

"25. Penalty is not merely sanction. lt is not merely adjunct
to assessment. It is not merely consequential to assessment. It is
not merely machinery. Penalty is in addition to tax and is a C
liability under the Act. Reference may be made to Section 28 of
the Indian Income-tax Act, 1922 where penalty is provided for
concealment of income. Penalty _is in addition to the amount of
income-tax. This Court in Jain Brothers v. Union of India, (1970)
77 ITR I 07 = [1969] 3 sec 311, said that penalty is not a D
continuation of assessment proceedings and that penalty partakes
of the character of additional tax.

26. The Federal Court in Chatturam v. C.lT., Bihar, (1947) 15
lTR 302,. Said that liability does not depend on assessment. There E
must be a charging section to create liability. There must be first
a liability created by the Act. Second, the Act must provide for
assessment. Third, the Act must provide for enforcement of the
taxing provisions. The mere fact that there is machinery for
assessment, collection and enforcement of tax and penalty in the F
State Act does not mean that the provision for penalty in the State
Act is treated as penalty under the Central Act. The meaning of
penalty under the Central Act cannot be enlarged by the provisions
of machinery of the State Act incorporated for working out the
Central Act."
G
Beg. J. in his concurring opinion held paras 37 aPd 38,which runs as
under :

"37. I also find from the Mysore Act of 1957, that Section
l 3 of the Act was entirely re-cast in 1958. It would, I think be H
248 SUPREME COURT REPORTS [2003) SUPP. 6 S.C.R.

A carrying the theory of referential legislation too far to assume that
Section 9(2) of the Central Act, 1956, purported to authorise the
State Legislatures to impose liabilities in the nature of additional
tax or penalties leaving their rates and conditions for their
imposition also to be determined by the State Legislatures as and
B when the State Legislatures decided to impose or amend them. It
is evident that these differ from State to State, and, in the same
State, at different times. A confennent of such an uncontrolled
power upon the State Legislatures could, if it was really intended,
be said to travel beyond the province of permissible delegated
c Legislation no the principles laid down long ago by this Court in
Re Delhi Laws 's case (supia) as no guidelines are given in Section
9(2) about the nature, conditions, or extent of penalties leviable.
If such a power· was really conferred would it not amount to an
abdication of an essential legislative fonction with respect to a
matter found as Item 92A of the Union List I of the Seventh
D Schedule so that, according to Article 246( I) of our Constitution,
Parliament has exclusive power to legislate on a topic covered by
it? As this question was not argued before us I would only say
that the correct canon of construction to apply in such a case is
that we should so interpret Section 9(2) of the Central Act, if
E possible, that no part of it may conceivably be invalid for
excessive delegation. The well known maxim applicable in such
·cases is : ut res magis .valeat quam pereat.

38. It is evident from Section 16(4) of the Bombay Act of
F 1953 that there is a particular percentage of th~ amount of tax
levied which is prescribed as penalty to be paid as an "addition
to the amount of tax for every month after the expiry of the
prescribed period of default". In other words it is a liability in the
nature of an additional or penal tax. Section 13(3)(b) of the
G Mysore Act also makes it clear that, on an application made to
the Magistrate, such as the one made in the case which has come
up before us from Mysore, the penalty may be equated with a fine.
Section 63 of the Bombay Act of 1959 speaks of certain "offences
and penalties". Indeed, Chapter 8 of that Act is itself headed as
"Offences and Penalties"."
H
C.C.E. v. ORIENT FABRICS PVT. LTD. 249
Mathew, J., however, in his dissenting opinion, inter alia, held that A
penalty can be levied as incidental to the levy and recovery of tax stating
as under :

"As the power to impose penalty is specifically provided for
in Section 16 of the.Bombay Sales Tax Act for enforcing payment B
of tax payable under it, it is unnecessary to speculate whether, bu.t
for the express provision in that Act, a power to impose penalty
for enforcement of tax payable under that Act would have been
implied. The object of the provision for the imposition of penalty
in Section 16 of the Bombay Sales Tax Act is to provide ~ C
stimulant to the dealer to observe the mandate of the section
directing the payment of the t~ within the prescribed time. In
other words, the provision for imposition of penalty in Section 16
of the Bombay Sales Tax Act facilitates the collection of tax as
it is a sanction for non-observance of the duty to pay the tax within
the prescribed time. It operates as a deterrent against !he commission D
of breach of that duty, and is a means to enforce the payment of
tax within the time prescribed."

The Gujarat High Court, in Ashok Fashion (supra), adopted the .
minority view holding:
E
"9.3. It will thus be seen that penalty provisions are an
integral part of assessment and collection of duties of assessment
and collection of duties of which the necessary adjuncts are
confiscation and penalty without which the imposition of taxes
will lack teeth and become ineffective. If power to impose penalty F
for violation of the obligation to pay additional duty of excise is
excluded in respect of the goods enumerated in the First Schedule
of the Additional Duties Act, then these taxation provisions would
be reduced to a donation drive in respt:ct of these very items for
which duty of excise is also imposed under the Central Excise Act, G
1944 and the Rules made thereunder and violation or"whic.h would
entail both confiscation and penalty."

It further referred to the amended provisions of the said Act, as would
appear from the following : H
250 SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.

A "7. It will be noticed from Sub-section (3) of Section 3 of
the Additional Duties Act that all the provisions of the Central
Excise Act, 1944 and the Rules made thereunder including those
relating to refunds and exemptions are made applic;:tble, so far as
may be, in relation to the levy and collection of additional duty
B of excise. The provisions of the Central Excise Act, 1944 and the
Rules made thereunder are made applicable to the additional duty
of exercise in the same manner and extent to which they apply
in relation to the levy and collection of the duties of excise on the
goods specified in column 3 of the First Schedule referred to in

c Section 3(1) of the Additional Duties Act. This is so stated,
because, all the goods SJ?ecified in the said First Schedule were
also subjected to duties of excise at the rates set forth in the
Schedule to the Central 'Excise Tariff of 1985, under Section 3 of
Central Excise Act 1944, which provision also lays down that
such duties of excise shall be 'levied and collected' in such
D manner as may be prescribed."

The decision in Ashok Fashion (supra) was, therefore, rendered on
total misapplication of the law laid down by the Constitution Bench
decision by Mis. Khemka & Co. (Agencies) Pvt. Ltd. (supra).
E
We are bound by the Constitution Bench decision in Mis. Khemka &
Co. (Agencies) Pvt. Ltd. (supra)

The Delhi High Court also in Pioneer Silk Mills Pvt. Ltd. (supra),
F upon noticing Mis. Khemka & Co. (Agencies) Pvt. Ltd. (supra) and various
other decisions clearly held :

"37. When penalty is additional tax, constitutional mandate
requires a clear authority of law for imposition thereof. If long-
drawn arguments are needed to explain if the Act by referential
G legislation or legislation by incorporation levies penalty or not, it
is better for the court to lean in favour of the tax payer. There is
no room for presumption in such a case. The mere fact that all
these years the Additional Duty Act has not been challenged on
this ground is of no consequence if authority of law as mandated
H by the Constitution is lacking. We may also note in the passing
C.C.E. v. ORIENT FABRICS PVT. LTD. 251

that it was submitted before us that penalty so realised earlier has A
never been distributed among the States as part of net proceeds
of the coliection of the additional duties of excise under the
Additional Duties Act. This statement made at the Bar was not
challenged. Since, however, this point was not raised in the writ
petition and the revenue had no opportunity to reply in its counter- B
affidavit, we leave the matter at that. Levy of penalty which is an
additional tax has to be under the authority of law which should
be clear, specific and explicit."

Furthermore this Court recently in Bairam Kumawat v. Union ofIndia C
and Ors., reported in [2003] 7 SCC 628, held as follows :

"37. We are, however, not oblivious of the fact that potential
public mischief cannot be a ground to invoke the court's
interpretative role to make a new offence. Making of legislation
is not the job of the judiciary. Making of a penal legislation by D
the judi::iary is strictly out of its bound. However, when the law
working in the field is clear then what is necessary for it is to find
out as to whether any offence has been created or not. Once it is
held that the subject-matter comes within the purview of the law,
the court may not do further and s·ay by interpretive reasoning that E
the same is not so created."

It is now a well settled principles of law that expropriatory legislation
must be strictly construed (see Mis. D.L.F. Qutab Enclave Complex
Educational Charitable Trust v. State of Haryana .and Ors., reported in F
AIR [2003] SC 1648.) It is further trite that a penal statute must receive
strict construction.

The matter may be considered from another angle. The Parliament
by reason of the Amending Act 32 of 1994 consciously brought in the
expression '::>ffences and penalties' in sub-section (3) of Section 3 of the G
Act. The mischief rule, if applied, would clearly show that such amendment
was brought with a vie':V to remedy the defect contained in the unamended
provisions of sub-section (3) of s.ection 3 of the Act. Offences having
regard to the provisions contained in Article 20 of the Constitution of India
cannot be given a retrospective effect. In that view of the matter too sub- H
252 SUPREME COURT REPORTS [2003] SUPP. 6 S.C.R.

A section (3) of Section 3 of the Act as amended cannot be said to have any
application at all.

In view of the aforesaid decisions, it must be held th;it the confiscation
proceedings taken against the respondents and the penalty imposed upon
B them were totally without the authority of law and were rightly set aside
by the Tribunal.

For the aforesaid reason, yve do not find any merit in the appeals. They
fail and are, accordingly dismissed. No costs.

R.P. Appeals dismissed.