2008 (3) TMI 215 - HC - Central Excise

Recovery of credit availed on HSD oil Sec. 112 of Finance Act & Rule 57-I of CER are harmonious revenue plea that sec. 112 will prevail over 57-I for recovery, is not acceptable - Tribunal was not right in concluding, that u/s 112(2)(b), interest can be levied, even where there is no adjudication of the SCN - no interest will be attracted on credit availed, before expiry of 30 days from the date of determination, made by OIO, passed pursuant to the notice given by authorities u/r 57-I

Issues Involved:

1. Whether the Tribunal was right in concluding that interest under Section 112(2)(b) of the Finance Act, 2000 can be levied without adjudication of pending show cause notices.
2. Whether interest could be levied only up to the date on which the cheque was presented in the Bank.

Detailed Analysis:

Issue 1: Interest Levy Without Adjudication of Pending Show Cause Notices

The primary issue in these appeals is whether interest under Section 112(2)(b) of the Finance Act, 2000 can be levied without adjudication of show cause notices that were pending at the time of the commencement of the said provision. The facts reveal that the competent authority issued notices to the assessees to show cause why the Modvat credit availed on HSD oil should not be recovered, as it was not available to them. During the pendency of these writ petitions challenging the jurisdiction of the authority, the Finance Act, 2000 was passed, which included Section 112, validating the denial of credit on HSD oil.

Section 112(2)(b) stipulates that recovery of all credit taken or utilized, which would not have been allowed if the provisions of sub-section (1) had been in force at all material times, must be made within thirty days from the date the Finance Act received the President's assent. If not paid within this period, interest at 24% per annum is payable from the expiry of the thirty-day period until payment.

The appellants argued that the interest liability arises only after adjudication and determination of the amount, as per Rule 57-I and Section 11A of the Central Excise Act, which require a show cause notice and determination before recovery. They contended that the Tribunal erred in holding that no determination is required under Section 112(2)(b) and that the issuance of a communication or order directing payment is not a pre-condition for interest liability.

The court noted that the notices issued under Rule 57-I were kept alive during the pendency of the writ petitions, and it was only after the judgment on 3.4.2002 that the proceedings were concluded, and orders of adjudication were made. The court emphasized that the provisions of Section 112(2)(b) do not eliminate the need for adjudication under Rule 57-I. The recovery mechanism under Rule 57-I must be followed, and the liability of interest starts from the expiry of the specified period after the demand notice is served.

The court found that the Tribunal's judgment was based on a misconception and held that the liability of interest under Section 112(2)(b) arises only from the expiry of thirty days from the date of the adjudication order. The Tribunal's conclusion that interest can be levied without adjudication was incorrect.

Issue 2: Interest Levy Up to the Date of Cheque Presentation

Given the resolution of the primary issue, the court did not find it necessary to address the additional question of whether interest could be levied only up to the date on which the cheque was presented in the bank.

Conclusion:

The appeals were allowed, and it was held that no liability of interest will be attracted on the amount of Modvat credit availed before the expiry of thirty days from the date of determination made by the order in original, passed pursuant to the notice given under Rule 57-I. The Tribunal's conclusion that interest can be levied without adjudication of pending show cause notices was set aside.

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