2008 (11) TMI 90 - HC - Central Excise

Interest - delayed payment of Excise Duty there was no provision for levy of interest at time of passing of OIO - Applicability of Rule 8(3) of CER, which ceased to operate from 1-4-05 held that petitioner is liable to pay interest equal to duty for the relevant period when rule applied- but petitioner aren t required to pay interest in excess of demand of duty for the period 1-3-02 to 1-4-05 and for the said period, the interest will be confined to the amount equal to the amount of duty

Summary

Issues:
Quashing of recovery notice for interest on delayed payment of Central Excise Duty.

Analysis:
The petitioner, a manufacturer of spun yarn, faced a demand of duty under the Central Excise Act, 1944, for allegedly mis-stating the raw material used in manufacturing goods. The Department claimed the petitioner was manufacturing man-made fiber instead of spun yarn. Despite a stay in the petitioner's favor until 2006, the matter was ultimately disposed of by the Hon'ble Supreme Court. Subsequently, the Department requested the petitioner to deposit the duty amount with interest, which the petitioner contested. The Department issued a recovery notice for interest under the Customs Rules, 1995, leading to the petitioner challenging the notice in this petition.

The main contention raised in the petition was the absence of any demand for interest in the original order or before the Tribunal. The petitioner argued that interest was demanded for the first time in 2007, and the provisions for interest were inserted in 1995, which should not have retrospective effect. The petitioner also relied on Rule 8(3) of the Central Excise Rules, 2002, limiting interest to the amount of duty unpaid by the due date. The Department, in response, justified the interest claim based on the statutory provision and the delay in payment by the petitioner following the 1992 order.

The Court considered the arguments presented by both parties and examined the relevant legal provisions. The petitioner relied on Rule 8(3) and (4) of the Central Excise Rules, 2002, to support their claim that interest should not exceed the duty amount for a specific period. Additionally, the petitioner cited precedents and judgments to strengthen their case. However, the Court found that under Section 11AA of the Act, the petitioner was obligated to pay interest at the statutory rate. The Court distinguished the judgments cited by the petitioner, emphasizing the unique circumstances of each case.

Regarding Rule 8(3) of the Central Excise Rules, the Court concluded that the petitioner's liability was limited to paying interest equal to the duty amount for the relevant period when the rule applied. The Court ruled in favor of the petitioner to the extent that interest could not exceed the demand of duty for a specific period, while upholding the recovery notice for the remaining period. Ultimately, the petition was allowed in part, with specific limitations on the payment of interest imposed on the petitioner for the mentioned period.