2017 (7) TMI 718 - HC - Central Excise

Classification of goods - AED - Embroidered Grey Fabrics - the central excise department alleged that the appellant had incorrectly classified the product under chapter heading No. 5804.11 as Lace/Motif of Cotton instead of chapter heading No. 5804.19 as Embroidery . The department was of the view that the appellant is liable to pay AED (TTA) @ 15% instead of 8% w.e.f. 20/08/1998 onwards - demand of interest - Held that - Sections 11AC and 11AB of Excise Act have not been incorporated in the ADE (T&TA) Act. The counsel appearing for the Department/Respondent though endeavoured unable to pinpoint the incorporation of these Sections. In absence of any statutory provisions, it is settled that any demand of penalty (11AC) and/or interest (11AB) would be without jurisdiction and authority of law. It is settled that a clear statutory mandate requires for authority to collect and/or raise demand of any tax and penalty and/or interest. In the absence of such provision, any demand in the present case, of penalty/interest is unauthorised, impermissible and unsustainable. The Department itself, therefore, accepted the position of law and even set aside such imposition under Section 11AC by Additional Commissioner by order dated 29.03.2010. In view of above, the order passed by the Assistant Commissioner dated 26.12.2012 whereby order to refund the amount in view of above, but directed to appropriate the interest to be paid by the assessee (Appellant) under Section 11 of the Excise Act, is unsustainable - The order of recovery of interest at appropriate rate for delayed payment by invoking the provision of Section 11AB of Excise Act, therefore, is unjust, unclaimable as it is illegal. In view of above reasons, the confirmation of the same by the impugned order dated 27.09.2013 is also unsustainable and is required to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:

1. Interpretation of the Central Excise Act regarding the imposition of interest.
2. Validity of the imposition of penalty and interest without specific statutory provisions.

Issue 1: Interpretation of the Central Excise Act regarding the imposition of interest

The appellant, engaged in manufacturing Embroidered Grey Fabrics, was alleged to have incorrectly classified the product under a different chapter heading, leading to a demand for Additional Duties of Excise (ADE). The dispute revolved around the imposition of interest under Section 11AB of the Central Excise Act. The appellant argued that since the ADE (T&TA) Act did not include provisions for penalty or interest, the demand for interest was unauthorized. The court emphasized that any demand for penalty or interest must have a clear statutory mandate, and in the absence of such provision, the demand would be unsustainable and impermissible. The court cited precedents to support the requirement of specific statutory provisions for imposing penalties and interest, highlighting the need for explicit authority under the law for such demands. The judgment concluded that the imposition of interest without statutory backing was illegal and unsustainable.

Issue 2: Validity of the imposition of penalty and interest without specific statutory provisions

The appellant had challenged the imposition of penalties and interest at various stages of the adjudication process. Despite the authorities confirming the demands, the court held that without specific provisions in the ADE (T&TA) Act akin to Sections 11AC and 11AB of the Excise Act, such demands were without jurisdiction and authority of the law. The court rejected the argument that the appellant should have filed for rectification of mistakes, emphasizing that the absence of statutory provisions rendered the demands unauthorized. The judgment underscored the necessity for a legal basis for imposing penalties and interest, stating that the absence of such provisions precluded the authorities from making such demands. The court highlighted the need for a strict interpretation of taxing provisions and the importance of adhering to the legal framework when imposing financial obligations on taxpayers. Ultimately, the court ruled in favor of the appellant, setting aside the order imposing interest and penalties due to the lack of statutory backing for such demands.

In conclusion, the High Court of Bombay held that the imposition of interest without specific statutory provisions was illegal and unsustainable. The judgment emphasized the importance of clear legal authority for imposing penalties and interest, highlighting the need for adherence to the legal framework in tax matters. As a result, the court allowed the appeal, quashing the final order that imposed interest on the appellant.