2006 (12) TMI 329 - AT - Central Excise

Imposition Of Penalty - Delay in payment of duty due to financial crisis - liability to pay interest - HELD THAT - Since it was obvious that, having disclosed the liability in their returns and pleading financial crisis as the cause of delay, there could not have been any intention to evade the payment of duty. Inference of evasion of duty cannot be drawn from mere delay in making the payment of tax in respect of the transactions already disclosed in the returns which were filed in time. Therefore, the imposition of penalty under the impugned order cannot be sustained. Liability to pay interest, it is clear from the provisions of Rule 8(3) that the appellant was liable to pay interest on the delayed payment at the interest rate stipulated thereunder which was 24% at the relevant time. To the extent that Rule 8(3) of the said rules authorized imposing of interest at Rs. 1000/- per day of delay, this Tribunal has already held in Automotive India (Raipur) Pvt. Ltd., v. CCE, Raipur 2006 (8) TMI 17 - CESTAT, NEW DELHI , that, the words rupees one thousand per day, whichever is higher occurring in Rule 8(3) were ultra-vires the provisions of Rule 11AB(1) of the Act and therefore, cannot be enforced. The Tribunal followed the ratio of the decision in Lucid Colloids Ltd. v. Union of India, 2005 (8) TMI 134 - HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR by which the said phrase was struck down as being beyond the scope of the rule-making power of the Central Government. There is, therefore, no scope for the Revenue authorities to work out the interest liability at the rate of Rs. 1000/- per day and interest, as ordered, is required to be worked out on the basis of Rule 8(3) to the extent that it creates the liability to pay the outstanding amount with interest at the rate of 2% per month (i.e. 24% per annum). The impugned order of penalty is therefore set aside and the order imposing interest under Rule 8(3) is confirmed subject to the above modification. The appeal is accordingly partly allowed.

Summary

Issues:
Late payment of excise duty, imposition of penalty under Rule 25, calculation of interest under Rule 8(3) of the Central Excise Rules, 2002.

Analysis:
The appellant, engaged in manufacturing electric motors, fans, and PD pumps, paid excise duty amount late due to financial crisis, leading to two show cause notices and imposition of a penalty of Rs. 9,65,000/- under Rule 25 and interest under Rule 8(3). The Appellate Commissioner reduced the penalty to Rs. 2,50,000/- while confirming the demand under Rule 8(3.

The appellant argued that there was no intention to evade duty as the liability was disclosed from the beginning, and the delayed payment was due to financial crisis. It was contended that penalty under Rule 25 could not be imposed without contravening rules with intent to evade duty. Additionally, the appellant challenged the interest rate of Rs. 1000/- per day under Rule 8(3) as ultra-vires Section 11AB(1) of the Central Excise Act, 1944.

The department's representative supported the penalty and interest imposed, suggesting that the delay indicated an intention to evade duty. He argued that interest should be calculated as per Rule 8(3).

The Tribunal noted that the appellant consistently disclosed the liability and financial crisis as the reason for the delay, indicating no intent to evade duty. Therefore, imposing a penalty under Rule 25 was unwarranted. Regarding interest, the Tribunal held that the interest rate of Rs. 1000/- per day was ultra-vires the Act and should be calculated at 2% per month (24% per annum) as per Rule 8(3), setting aside the penalty and confirming interest with modifications.

In conclusion, the Tribunal partly allowed the appeal, setting aside the penalty and confirming the interest calculation under Rule 8(3) at the revised rate, emphasizing that delay in payment due to financial crisis did not imply an intent to evade duty.