2016 (5) TMI 1234 - HC - Indian Laws

Penal interest for late deposit of excise duty on wastage of Beer in excess of 10% - sale of Beer and Indian made foreign liquor - Held that - When the High Court quashed the demand notice, it was wiped out from the face of the earth. Once the demand order was quashed, it was no longer in existence and, therefore, there was no valid demand for payment of excise duty during the period when the order of the High Court prevailed. It is only when the Supreme Court reversed the decision of the High Court that the excise demand became payable upon a fresh notice of demand. Penal interest becomes payable when the fresh demand is not paid within the stipulated period. In the instant case, the excise demand was paid within the stipulated period and, therefore, the question of demand of penal interest does not arise.

Issues Involved:
1. Legality of the demand for penal interest.
2. Applicability of Section 38A of the U.P. Excise Act, 1910.
3. Interpretation of "becomes payable" in the context of excise revenue.
4. Effect of quashing and subsequent revival of demand notices.
5. Principle of merger and its applicability.
6. Validity of concession given by counsel during interim orders.

Detailed Analysis:

1. Legality of the Demand for Penal Interest:
The petitioner challenged the order dated 1st June 2012, issued by the Assistant Excise Commissioner, demanding ?5,92,20,339.94 towards penal interest for late deposit of excise duty from September 1963 to March 1973. The petitioner contended that there is no provision for the imposition of penal interest under the U.P. Excise Act, 1910, making the demand illegal. The court examined Section 38A, which was inserted by U.P. Act No.7 of 1985, and concluded that penal interest could not be imposed retrospectively for demands prior to 1985.

2. Applicability of Section 38A of the U.P. Excise Act, 1910:
Section 38A of the Act stipulates that interest on arrears of excise revenue is payable if the excise revenue has not been paid within three months from the date it becomes payable. The provision was inserted with effect from 28th March 1985. The court noted that the provision is prospective and would apply to excise revenue payable from 28th March 1985 onwards. The second proviso allows for interest on excise revenue that became payable before this date if not paid within three months from the date of enforcement of the amendment.

3. Interpretation of "Becomes Payable":
The court focused on the interpretation of "becomes payable" under Section 38A. It concluded that "becomes payable" means "legally recoverable." The excise revenue becomes payable when it is determined. The court cited the Supreme Court's judgment in New Delhi Municipal Committee Vs. Kalu Ram, which held that "payable" means legally recoverable.

4. Effect of Quashing and Subsequent Revival of Demand Notices:
The court examined whether the excise revenue demanded between 1963 and 1973 became payable. It held that once the High Court quashed the demand, it was wiped out from existence. The excise revenue became legally recoverable only after the Supreme Court's decision on 23rd September 2011, which revived the demand. The court cited the Supreme Court's judgment in Food Corporation of India Vs. State of Haryana, holding that interest was not payable for the period when there was no valid demand.

5. Principle of Merger and Its Applicability:
The court rejected the argument that the principle of merger would automatically revive the excise demand. It held that while the judgment of the High Court merges with that of the Supreme Court, the excise demand quashed by the High Court does not revive on its own. A fresh valid demand notice must be issued post the Supreme Court's decision, and penal interest would only apply if the amount is not paid within the stipulated period thereafter.

6. Validity of Concession Given by Counsel During Interim Orders:
The court addressed the argument that the petitioner’s counsel conceded that interest was payable from the date of enforcement of Section 38A in 1985. The court held that there can be no estoppel against a statute, and the statutory provisions must be adhered to. The concession given by the counsel cannot override the mandatory statutory provision, supported by the Supreme Court's decision in Vijay Narayan Thatte Vs. State of Maharashtra.

Conclusion:
The court quashed the impugned demand of penal interest dated 1st June 2012, holding that the excise demand became legally recoverable only after the Supreme Court's decision on 23rd September 2011. Since the petitioner paid the excise demand within the stipulated period post the Supreme Court's judgment, no penal interest was payable. The writ petition was allowed.

← Previous Next →