2015 (9) TMI 149 - HC - Central Excise

Challenge to Rule 8(3) of the Central Excise Rules - Violation of Articles 14, 19(1)(g), 50 and 265 of the Constitution of India - whether interest is chargeable in terms of Rule 8(3) Central Excise Rules or under the provisions of Section 11AB of the Central Excise Act - Held that - Rule 8(3) of the Central Excise Rules in respect of levy of interest at the rate of ₹ 1000/- per day is held to be invalid. Consequently, the demand raised at whatever stage insofar as levy of interest at ₹ 1000/- per day in terms of Rule 8(3) of the Central Excise Rules is also set aside. - Decision in the case of Lucid Colloids Limited V. Union of India 2005 (8) TMI 134 - HIGH COURT OF RAJASTHAN - Decided in favour of assessee.

Summary

Issues:
Challenging Rule 8(3) of Central Excise Rules as violative of Constitution of India, determining chargeability of interest under Rule 8(3) or Section 11AB of Central Excise Act.

Analysis:
The Writ Petitions challenge Rule 8(3) of the Central Excise Rules, alleging violation of constitutional provisions and seeking to set aside the demand based on it. The primary issue for consideration in these petitions is whether interest should be charged under Rule 8(3) of the Central Excise Rules or under Section 11AB of the Central Excise Act. Both the petitioners' and respondents' counsels refer to a Rajasthan High Court decision, which held Rule 8(3) ultra vires to Section 11AB, indicating that the issue has been previously addressed in a similar context.

The Rajasthan High Court's decision in Lucid Colloids Limited v. Union of India is cited, emphasizing that the central government is authorized to determine interest rates to prevent delayed payments from being profitable due to lower interest rates. The Court noted that charging interest at a fixed rate per annum is crucial, and any deviation from this principle transforms the nature of interest from compensatory to penal. The provision allowing an alternative levy of interest per day, disconnected from the default amount, is deemed impermissible and in violation of the Parent Act.

The Court further elaborates that the alternative mode of interest calculation, such as the daily rate exceeding the prescribed interest, is contrary to the enabling power granted under Section 11AB. It is emphasized that such provisions alter the fundamental basis of interest calculation and are therefore unsustainable. The Court concludes that Rule 8(3) is invalid to the extent that it provides for a higher daily interest rate as an alternative to the prescribed rate, and such provisions are held inoperative.

The judgment is supported by a subsequent decision of the Gujarat High Court in K.C. & Sons Appliances Pvt. Ltd. v. Union of India, reinforcing the invalidity of charging interest at a daily rate of Rs. 1000 under Rule 8(3) of the Central Excise Rules. Ultimately, the Writ Petitions are allowed, setting aside the demands based on the contested provision, and directing the recomputation of interest solely in accordance with the prescribed rates under Section 11AB. The Court's decision aligns with the precedents and upholds the principle that interest should be charged within the statutory limits and in compliance with the Central Excise Act.