Supreme Court: In a batch of civil appeals against Madhya Pradesh High Court’s decision, the Court answered on the issue of relevant rule for imposition of penalty, whether it is the rule that existed when the violation occurred during the license period of 2009-10 or the rule that was substituted in 2011, which reduced the quantum of penalty. The Division Bench comprising of Pamidighantam Sri Narasimha and Aravind Kumar, JJ. allowed the appeals and held that that the penalty to be imposed would be based on the substituted Rule, which reduced the penalty.
Background
The appellant is a sub-licensee under the (‘the Act’) for manufacture, import and sale of foreign liquor, regulated under the Madhya Pradesh Foreign Liquor Rules, 1996 (‘the 1996 Rules’). If the permissible limits of loss of liquor in transit due to leakage, evaporation, wastage etc., are exceeded, the 1996 Rules prescribe for imposition of penalty under Rule 19. Rule 19 provided for penalty that could be imposed during the relevant license period of 2009-2010 was about four times the maximum duty payable on foreign liquor.
Rule 19 was substituted by an amendment dated 29-03-2011, which reduced the penalty from four times the maximum duty payable to an amount not exceeding the duty payable on foreign liquor. Eight months after the amendment, a demand notice dated 22.11.2011 was issued directing payment of penalty for exceeding the permissible limits during the license year 2009- 2010. A notice was issued to the appellant demanding a penalty of four times the duty as per the unamended Rule 19. It was contended that the penalty can only be under the substituted Rule 19 as the old rule stood repealed, and in fact, the demand is raised after the substituted Rule came into force. The Deputy Commissioner rejected the appellant’s contention and confirmed the demand for payment of a penalty four times the duty payable. The Deputy Commissioner’s order was upheld by the Excise Commissioner, and thereafter by the Revenue Board Gwalior. The Single Bench of the High Court held that the old Rule stood repealed from the statute book and only the substituted Rule applied to all the pending and future proceedings. Therefore, the orders of the statutory authorities were set aside, and the matter was remanded back for determining the penalty as per the substituted Rule. The Division Bench of the High Court, vide, the order impugned, reversed the decision of the Single Judge on the simple ground that as the license was granted for one year, the Rule that existed during that license year must apply. The reason for not applying the substituted Rule was that the determination of penalty being substantive law, cannot operate retrospectively.
Issue
Which is the relevant rule for imposition of penalty, whether it is the rule that existed when the violation occurred during the license period of 2009-10 or the rule that was substituted in 2011 when the proceedings for penalty were initiated?
Analysis and Decision
The Court determined that the amendment’s purpose is to achieve a proper balance between crime and punishment or the offence and penalty. Classifying offenders into before or after the amendment for imposing higher and lower penalties does not serve any public interest, the substituted Rule alone will apply to pending proceedings.
The Court referred to Koteswar Vittal Kamath v. K. Rangappa Baliga & Co., , wherein the distinction between supersession of a rule and substitution of a rule was brought out, and it was held that the process of substitution consists of two steps — first, the old rule is repealed, and next, a new rule is brought into existence in its place. Referring to several recent cases, regarding the operation of repeal or substitution of a statutory provision, the Court said that a repealed provision will cease to operate from the date of repeal and the substituted provision will commence to operate from the date of its substitution. The Court also clarified that this principle is subject to specific statutory prescription, a statute can enable the repealed provision to continue to apply to transactions that have commenced before the repeal. Similarly, a substituted provision which operates prospectively, if it affects vested rights, subject to statutory prescriptions, can also operate retrospectively.
For the subordinate legislation, the Court said that without a statutory empowerment, subordinate legislation will always commence to operate only from the date of its issuance and at the same time, cease to exist from the date of its deletion or withdrawal.
In the matter at hand, on perusal of Section of the , the Court said that it does not enable the executive to continue the application of a repealed rule to events that have commenced during the subsistence of the Rule. However, Section 63 enables the executive to operate the Rule from a date as may be specified in that behalf, but it does not provide continuation of a repealed provision to rights and liabilities accrued during its subsistence.
The Court noted that Rule 19, substituted on 29-03-2011, was not notified to operate from any other date by the Government. Regarding the State’s contention that the repealed Rule would apply on the transaction of 2009-2010 by virtue of provisions under the (‘MP GCA’), the Court said that Section of the is applicable only to enactments, i.e. when any M.P. Act repeals any enactment and not a subordinate legislation.
The Court explained that Section of the provides that its extension can only be for construction of subordinate legislations, only when it is not repugnant to the subject and context. In light of the test that whether anything is repugnant to the subject or context to disapply the mandate of Section of , to the construction of the 1996 Rules, the Court said that the day to day working of the Rules, their effectiveness, ineffectiveness, deficiency of deterrence, disproportionate penalty having a chilling effect on genuine businesses, are some routine factors which require the executive to make necessary amendments to the Rules and depending on the nature of offence, the proportionate penalty is required to be modulated from time to time. The Court said that the subject and context of the amendment, intended to reduce the quantum of penalty for better administration and regulation of foreign liquor, cannot be ignored and the State could not be permitted to recover the penalty as per the unamended Rule. The principle of Section of , relating continuation of a repealed provision to rights and liabilities that accrued during the subsistence of the Rule does not subserve the purpose and object of the amendment, bringing about good governance and effective management.
Regarding the contention of the State, as to retrospective effect of the substituted Rule, the Court said that it is wrong to assume that the substituted Rule is given retrospective effect if its benefits are made available to pending proceedings or to those that have commenced after the substitution. Rule 19 which was substituted on 29-03-2011 is made applicable to proceedings that have commenced with the issuance of the demand notice in November, 2011. The Rule operates retroactively and thus saves it from arbitrarily classifying the offenders into two categories with no purpose to subserve.
The Court said that with the substituted penalty only pacifies the rigour of law by reducing the penalty from four times the duty to value of the duty. The Court did not agree with the opinion of both, the Single Judge as well as the Division Bench. Thus, the Court allowed the appeals and set aside the impugned decision of the Division Bench of the High Court and held that the penalty to be imposed on the appellants would be based on Rule 19 as substituted on 29-03-2011.
CASE DETAILS
| Citation: Appellants : Pernod Ricard India (P) Ltd. Respondents : State of M.P. | Advocates who appeared in this case For Petitioners: Senior Advocate Pratap Venugopal, Adv. Surekha Raman, Adv. Amarjit Singh Bedi, Adv. Abhishek Anand, Adv. Unnimaya S, Adv. Shreyash Kumar, AOR M/s. K J John and Co, AOR For Respondents: AAG Saurabh Mishra, AOR Sunny Choudhary, Adv. Sandeep Sharma, Adv. Manoj Kumar, Adv. Karan Bishnoi, Adv. Utkarsh Mishra |
CORAM :
Pamidighantam Sri Narasimha, J.
Aravind Kumar, J.
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