2017 (2) TMI 1386 - HC - Central Excise

Demand of Interest - Whether the order of the Tribunal confirming the levy of interest is without jurisdiction inasmuch as it fails to see that the petitioner had paid the duty even before the issuance of show cause notice? - Held that - The provisions of Section 11AC of the Act are attracted only in the event of the revenue establishing fraud, collusion, wilful misstatement, suppression of facts or contravention of statutory provisions with an intent to evade payment of duty. This has not been done in the present case. Moreover, the duty itself has been remitted on 27-2-2007 even prior to the issuance of SCN by the authorities - levy of interest upheld and penalty deleted - appeal allowed in part.

Summary

Issues:
1. Challenge to the order of CESTAT confirming the levy of interest.
2. Interpretation of Section 11AC regarding the imposition of penalty.
3. Application of the proviso under Section 11AC for penalty calculation.
4. Comparison of the impugned order with a decision of the Karnataka High Court.

Issue 1: Challenge to the order of CESTAT confirming the levy of interest

The appellant, a company engaged in manufacturing, was audited by Central Excise Authorities, revealing uncollected duty on additional conversion charges. The Department pointed out the non-payment, leading to the remittance of duty but without interest. The order-in-original demanded duty, interest, and penalty under Sections 11A(1), 11AB, and 11AC of the Act, respectively. The Commissioner confirmed interest but reversed the penalty. The CESTAT upheld the interest and reinstated the penalty, prompting the appellant's appeal.

Issue 2: Interpretation of Section 11AC regarding the imposition of penalty

The appellant argued that since duty was remitted before the demand, penalty under Section 11AC was unwarranted. The proviso to Section 11AC was cited, emphasizing that if duty and interest are paid within 30 days of the order, the penalty should be 25% of the duty. The appellant relied on a Delhi High Court case to support this interpretation.

Issue 3: Application of the proviso under Section 11AC for penalty calculation

The respondent contended that fulfilling two conditions was necessary for the proviso's application: payment of duty and interest as per Section 11AB. As per the respondent, the latter condition was not met. Reference was made to Supreme Court judgments regarding interest on differential duty, highlighting the uncertainty of interest liability. The appellant argued that this uncertainty should prevent denying the proviso's benefit for penalty imposition.

Issue 4: Comparison of the impugned order with a decision of the Karnataka High Court

The appellant highlighted that Section 11AC applies only in cases of established fraud, collusion, wilful misstatement, or suppression of facts to evade duty payment, which was not proven in this case. Additionally, duty was remitted before the show cause notice issuance. Considering the circumstances and arguments, the court confirmed interest but deleted the imposed penalty, disposing of the appeals without costs.

This judgment delves into the nuances of duty remittance, interest payment, and penalty imposition under the Central Excise Act, providing a detailed analysis of the legal provisions and their application in the context of the appellant's case.