2015 (1) TMI 1272 - AT - Central Excise

Duty short paid - Demand of interest and penalty under Rule 27 of the Central Excise Rules, 2002 - payment of differential duty - period of limitation - Held that - Held that - Under the Central Excise Act, the normal period of limitation for demand of duty short levied or not levied, etc. is one year. Now the question is how does or from what date the said period of one year should be computed. The appellant herein was asked by the Regular Bench to file copies of the monthly excise returns so that it can be ascertained when and whether they had intimated the fact of short payment of duty; however, the appellant was unable to produce copies of the said returns. In the absence of any such evidence led by the appellant, it can be safely presumed that the fact of short payment of duty was brought to the notice of the department only in the monthly returns filed after payment of differential duty. In the present case, it is a fact on record that the short payments were made good only on 30-6-2002 and 6-12-2002 and therefore, these details would be available only in the returns filed in July, 2002 and January, 2003. The show cause notice having been issued in October, 2003, the demand in respect of payment made in December, 2002, is clearly within the normal period of limitation of one year and hence, the demand of interest in respect of this payment is clearly sustainable. Though a contention has been raised that since the issue pertained to interpretation of the statute, imposition of penalty is not warranted is not agreed for the simple reason that it is not the case of the appellant that he was not liable to pay interest. The only contention is that the notice was not issued in time. It should be remembered that the appellant is operating in a self-assessment of tax regime and therefore, a greater responsibility is cast on him to comply with the requirements of law. Rule 27 imposing general penalty does not require any mens rea on the part of the assessee and mere default will suffice to attract its provisions Thus the interest on the duty paid in December 2002 is upheld. Penalty imposed under Rule 27 for default in payment of interest is also upheld. As far as the interest on the duty paid in May is concerned, the same is set aside.

Issues Involved:
1. Validity of the show cause notice (SCN) for recovery of interest issued beyond the normal period of limitation.
2. Liability to pay interest under Section 11A(2B) of the Central Excise Act, 1944, upon suo motu payment of differential excise duty.
3. Imposition of penalty under Rule 27 of the Central Excise Rules, 2002.
4. Applicability of the revenue-neutral situation to the demand of interest.
5. Requirement of specific allegations for invoking the extended period of limitation for the demand of interest.
6. Validity of demand notice and recovery of interest in the absence of specific allegations of suppression, fraud, or willful misstatement.

Detailed Analysis:

1. Validity of the SCN for Recovery of Interest Issued Beyond the Normal Period of Limitation:
The appellant contended that the SCN dated 21-10-2003 for recovery of interest was issued beyond the normal period of limitation. The Tribunal in the case of Emco Ltd. v. CCE - 2011 (272 E.L.T. 136 (Tri.-Mumbai) held that the recovery of interest must be within the period of limitation applicable to the duty on which interest is sought to be levied. The Tribunal also noted that in the absence of any suppression of facts or misstatement, the extended period of limitation cannot be invoked. The Hon'ble Supreme Court in the case of Kaur and Singh v. CCE - 1997 (94) E.L.T. 289 (S.C.) supported this view.

2. Liability to Pay Interest under Section 11A(2B) of the Central Excise Act, 1944:
The Tribunal examined whether the appellant is liable to pay interest under Section 11A(2B) upon suo motu payment of differential excise duty. The Tribunal in the case of Emco Ltd. observed that interest liability is a consequential liability whenever there is a delayed payment of duty, and no separate notice is required for recovery of interest. The Hon'ble Supreme Court in the case of CCE v. SKF India Ltd. - 2009 (239) E.L.T. 385 (S.C.) held that interest is payable on the delayed payment of duty.

3. Imposition of Penalty under Rule 27 of the Central Excise Rules, 2002:
The Tribunal noted that the appellant did not follow the provisional assessment procedure and paid duty as if it was the final value. The Hon'ble Supreme Court in the case of Gujarat Travancore Agency v. CIT, Kerala [1989 AIR SC 1671] held that the creation of an offense by statute implies that society suffers injury by the act or omission of the defaulter, and a deterrent must be imposed to discourage the repetition of the offense. Therefore, the penalty under Rule 27 was correctly imposed.

4. Applicability of the Revenue-Neutral Situation to the Demand of Interest:
The appellant argued that it is a revenue-neutral situation, and the demand of interest is not sustainable. However, the Hon'ble Supreme Court in the case of International Auto Ltd. - 2010 (250) E.L.T. 3 (S.C.) held that interest is levied for the loss of revenue on any count, and the concept of revenue neutrality is not embedded in Section 11A(2B) or any other section of the Central Excise Rules, 1944.

5. Requirement of Specific Allegations for Invoking the Extended Period of Limitation:
The Tribunal noted that Section 11A provides for the extended period of limitation under specific circumstances such as suppression of facts, fraud, or willful misstatement. The Hon'ble Supreme Court in the case of Citedal Fine Pharmaceuticals - 1989 (42) E.L.T. 515 (S.C.) held that in the absence of any period of limitation, the authority must exercise the power within a reasonable period. The Tribunal concluded that for the demand of interest, it is not necessary to make specific allegations relating to suppression, fraud, or willful misstatement.

6. Validity of Demand Notice and Recovery of Interest in the Absence of Specific Allegations:
The Tribunal held that no separate notice is required for the recovery of interest once the duty liability is discharged belatedly. The Hon'ble Supreme Court in the case of Kanhai Ram Thekedar [2005 (185) E.L.T. 3 (S.C.)] held that accrual of interest is automatic, and no separate notice is required. However, the Tribunal concluded that the demand of interest must be issued within a reasonable period, and in this case, the demand for interest on the duty paid in December 2002 was upheld as it was within the normal period of limitation.

Majority Order:
In view of the opinion of the Third Member, the interest on the duty paid in December 2002 is upheld. The penalty imposed under Rule 27 is also upheld. As far as the interest on the duty paid in May is concerned, the same is set aside.

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