2015 (6) TMI 338 - HC - Central Excise

Interest u/s 11AA - Held that - The Revenue was engaged in prolonged litigation and had to move a Notice of Motion in contempt and thereafter as well the amounts were not paid. Then, notices were issued for encashment of bank guarantees and which are to be found from page 67 onwards. Despite such notices, the petitioner did not come forward to clear the dues. Thereafter, Detention Memo was issued detaining the immovable properties. That also did not have any effect and impact till 2004. On 6th October, 2004, the petitioner came forward and offered to pay the duty amount. After that amount was paid, the detention was raised. Thereafter, there was communication from the Deputy Commissioner, Central Excise that the petitioner will be disallowed to pay central excise duty on fortnightly basis as it was doing earlier and that it will have to pay the duty for each consignment by debiting the current account or by cenvat for a period of two months from the date of communication of that order. The petitioner preferred to follow the cenvat method from 16th November, 2000, onwards. Thereafter, a Corrigendum was issued making it clear that the petitioner will have to make payment by debiting to the credit account only. That is how thereafter the petitioners made payment from the personal ledger account. - claim ought to be adjudicated and such communications were held to be untenable in law. We are not in any manner doubting this proposition but its application must depend on facts and circumstances in each case. The claim for interest could arise in various situations. The demand may also arise if the admitted and adjudicated sum is not remitted and paid within the time stipulated by law or within a reasonable period. The party being deprived of its legitimate dues and without any cause can seek to compensate itself by raising a demand for interest and which demand could be based on the undisputed facts. Then there is nothing required to be adjudicated or decided. Once an advantage of an interim order has been taken and the Revenue is deprived of the amount of tax, then, the recovery of public dues is deferred and delayed. The advantage cannot continue after such interim orders are vacated or set aside. Thereafter, if the amounts are not paid on demand or if demanded but paid belatedly, the interest can be recovered and it is the duty of the Court to ensure that one deprived of legitimate and legal dues particularly public money is compensated. It is this principle which we have applied. Demand was justified in this case and deserves to be upheld. We clarify that our view must be seen in the light of the admitted and undisputed facts noted above and of the present case. The applicability of the principles laid down in the Supreme Court decisions must be seen in the facts and circumstances of each case. No general rule can be laid down. Our conclusion does not mean that in each and every case of such nature no prior opportunity should be given or the demand can be made and anytime for any period, prior and subsequent. Ultimately, equitable principles should be applied if the facts and circumstances demand and not otherwise. - Decided against assessee.

Summary

Issues Involved:
1. Challenge to the communication/letter dated 18th October 2006.
2. Legality of the direction to pay interest under Section 11AA of the Central Excise Act, 1944.
3. Alleged violation of principles of natural justice.
4. Validity of the demand for interest without a show cause notice.
5. Timeliness and justification of the interest demand.

Detailed Analysis:

1. Challenge to the Communication/Letter Dated 18th October 2006:
The petitioner, M/s. Swan Mills Limited, challenged a letter dated 18th October 2006, which directed the payment of interest from 26th August 1995 to 7th October 2004, amounting to Rs. 1,69,55,030/-. The petitioner argued that this direction was illegal and contrary to the principles of natural justice as it was issued without a show cause notice or an opportunity to be heard.

2. Legality of the Direction to Pay Interest Under Section 11AA of the Central Excise Act, 1944:
The petitioners contended that the direction to pay interest was not automatic and that the statutory power to demand interest under Section 11AA came into force later. The respondents argued that the liability to pay interest is inherent in the obligation to pay the tax, and the demand for interest was justified given the prolonged litigation and delay caused by the petitioner.

3. Alleged Violation of Principles of Natural Justice:
The petitioners claimed that the impugned letter was issued without a show cause notice or a prior opportunity to be heard, violating the principles of natural justice. The respondents countered that the facts were undisputed, and the petitioner had engaged in prolonged litigation to delay the recovery of dues, thus not warranting a show cause notice.

4. Validity of the Demand for Interest Without a Show Cause Notice:
The petitioners argued that the demand for interest was invalid as it was issued without a show cause notice. The court noted that the demand for interest was based on undisputed facts and prolonged litigation, and there was no need for adjudication or a show cause notice in such circumstances. The court referred to various judgments, including the Supreme Court's decision in Aditya Mass Communications (P.) Ltd. v. Andhra Pradesh State Road Transport Corpn., which held that interest could be awarded on equitable grounds even in the absence of a specific legal provision.

5. Timeliness and Justification of the Interest Demand:
The petitioners argued that the demand for interest was time-barred and unjustified. The respondents contended that the demand was reasonable given the prolonged litigation and delay caused by the petitioner. The court held that the demand for interest was not time-barred, as the petitioner had engaged in prolonged litigation and delayed the payment of dues. The court referred to the Supreme Court's decision in South Eastern Coalfields Ltd. v. State of M.P., which held that interest is payable in equity even in the absence of a specific legal provision.

Conclusion:
The court dismissed the writ petition, upholding the demand for interest. The court emphasized that the prolonged litigation and delay caused by the petitioner justified the demand for interest, and there was no need for a show cause notice in such circumstances. The court also noted that the principles of natural justice were not violated, as the facts were undisputed and there was no need for adjudication. The court concluded that the demand for interest was justified and not time-barred, and the petitioner's arguments were without merit.