2010 (6) TMI 691 - AT - Central Excise

Liability of interest - scope of Show Cause Notice - Section 11A - Sections 11AA - section 11AB - interest, whether penal in nature or compensatory in nature - amended provisions - period of demand from 1-4-2000 to 11-5-2001 - time limitation.

Issues Involved:
1. Demand of interest on differential duty without issuing a show cause notice.
2. Applicability of amended provisions of Section 11AA and 11AB for interest calculation.
3. Adjustment of Cenvat credit for interest computation.
4. Delay in raising the demand for interest.
5. Nature of interest as compensatory or penal.
6. Refund of excess interest paid.

Issue-wise Detailed Analysis:

1. Demand of Interest Without Show Cause Notice:
The appellants argued that the demand for interest on differential duty required a show cause notice as per Section 11A(2) of the Central Excise Act. The Tribunal noted that Sections 11AA and 11AB do not explicitly mandate a show cause notice for interest demands. The Commissioner (Appeals) relied on the Supreme Court's judgment in Commissioner of Trade Tax, Lucknow v. Kanhai Ram Thekedar, which held that interest accrual on arrears is automatic and does not require a separate notice. The Tribunal upheld this view, stating that the demand for interest is in accordance with law and does not require a separate show cause notice when duty is confirmed.

2. Applicability of Amended Provisions of Section 11AA and 11AB:
The Commissioner (Appeals) found that the amended provisions of Sections 11AA and 11AB, effective from 12th May 2001, were not applicable to duty liabilities that arose before this date. The Tribunal agreed, stating that for the period from 1-4-2000 to 11-5-2001, the amended provisions were not applicable, and interest could not be demanded for this period. The matter was remanded to the lower authorities for re-quantification of interest liability as per these findings.

3. Adjustment of Cenvat Credit:
The appellants sought adjustment of the Cenvat credit balance of Rs. 30,91,046/- for computing interest liability. The Commissioner (Appeals) allowed this adjustment from 29-9-2003. The Tribunal upheld this decision, rejecting the appellants' claim for an earlier adjustment date as it was not raised before the Commissioner (Appeals).

4. Delay in Raising the Demand for Interest:
The appellants contended that the interest demand raised in July 2005 for the period from 1-4-2000 to 31-1-2002 was delayed and should be barred by limitation. The Tribunal noted that the duty liability itself was under prolonged litigation and was finalized only in April 2005. Therefore, the interest demand raised immediately thereafter was not considered delayed. The Tribunal found no merit in the argument that the interest demand was barred by limitation.

5. Nature of Interest as Compensatory or Penal:
The appellants argued that the interest under Section 11AA was penal and not compensatory. The Tribunal referred to the Supreme Court's judgment in Pratibha Processors v. Union of India, which clarified that interest is compensatory in nature, imposed for withholding payment of tax. The Tribunal held that the interest demanded was compensatory and not penal.

6. Refund of Excess Interest Paid:
The appellants sought a refund of the excess interest paid. The Tribunal directed the original authority to re-quantify the interest liability and refund any excess amount paid by the appellants in accordance with the law.

Conclusion:
The Tribunal allowed the appeals by way of remand for fresh decision, directing the lower authorities to re-quantify the interest liability as per the Tribunal's findings and provide the appellants an adequate opportunity to present their case. The Tribunal upheld the view that no separate show cause notice is required for demanding interest when duty is confirmed, and that the interest demand was not barred by limitation. The interest was held to be compensatory in nature, and the appellants were entitled to a refund of any excess interest paid.

← Previous Next →