Supreme Court Holds Reduced Penalty Under Amended Rule Applicable to Pending Excise Proceedings

In Pernod Ricard India Pvt. Ltd. v. State of Madhya Pradesh & Ors. (2024 Latest Caselaw 259 SC), the Supreme Court held that where a substituted statutory rule reduces the quantum of penalty, the amended provision should apply to pending proceedings initiated after the amendment. The Court observed that applying the old, harsher penalty despite the legislative decision to reduce it would create an arbitrary distinction between similarly placed offenders and defeat the purpose of the amendment. 

The appellant, a sub-licensee under the Madhya Pradesh Excise Act, imported foreign liquor during the licence period 2009–10. The authorities alleged that the permissible limit of transit loss under the Madhya Pradesh Foreign Liquor Rules, 1996 had been exceeded. At the relevant time, Rule 19 provided for a penalty ranging from three to four times the maximum excise duty payable. However, before any penalty proceedings were initiated, Rule 19 was substituted on 29 March 2011, reducing the maximum penalty to an amount not exceeding the duty payable. Despite the amendment, the Excise Department issued a demand notice in November 2011 seeking to recover penalty under the old Rule. The statutory authorities and the Division Bench of the Madhya Pradesh High Court upheld the demand, leading to the present appeals. 

The principal issue was whether the substituted Rule 19, which reduced the quantum of penalty, would apply to penalty proceedings initiated after the amendment even though the alleged violation had occurred before the amendment came into force. 

The Supreme Court allowed the appeals and held that the amended Rule alone governed the pending proceedings. The Court observed that:

•A rule substituted by amendment ordinarily replaces and repeals the earlier rule unless the statute provides otherwise.

•The Madhya Pradesh Excise Act did not contain any provision preserving the operation of the repealed Rule for pending penalty proceedings. 

•The substituted Rule reflected the State's policy decision that a lower penalty was appropriate for such violations. 

•Applying the old Rule after the amendment would arbitrarily classify offenders based solely on the date when proceedings were initiated, without serving any public interest. •The amended Rule was being applied prospectively to proceedings commenced after its substitution and therefore was not being given retrospective effect. The Court also rejected the State's reliance on the Madhya Pradesh General Clauses Act, holding that its saving provisions did not justify continuing the operation of the repealed penalty provision in the facts of the case. 

The Supreme Court:

•Allowed the appeals. 

•Set aside the judgment of the Division Bench of the Madhya Pradesh High Court. 

•Held that the substituted Rule 19, effective from 29 March 2011, would govern the penalty proceedings. 

•Directed that penalty be determined under the amended Rule, under which the penalty could not exceed the duty payable. 

•Made no order as to costs. 

The judgment clarifies that where a substituted statutory rule reduces the severity of a penalty, the benefit of the amended provision should ordinarily extend to pending proceedings commenced after the amendment unless the statute expressly provides otherwise. It also explains the legal effect of substitution of subordinate legislation and emphasises that penal provisions should be interpreted in a manner that advances fairness, proportionality and the legislative objective underlying the amendment.