2019 (7) TMI 954 - HC - Central Excise

Levy of interest and penalty - penalty and interest has been levied/upheld in the present matter by reference to the Rule 96ZO(3) of the Central Excise Rules,1944 - Valuation - annual capacity of production - main contentions raised by the Petitioner was that the annual capacity of production ought to have been determined on the basis of actual power supply position and not merely the sanctioned power supply position - HELD THAT - In M/S. SHREE BHAGWATI STEEL ROLLING MILLS VERSUS COMMISSIONER OF CENTRAL EXCISE ANOTHER 2015 (11) TMI 1172 - SUPREME COURT , the Hon'ble Apex Court has declared the interest and penalty provisions under Rules 96ZO, 96ZP and 96ZQ of the Central Excise Rules, 1944 to be invalid for detailed reasons set out in the said judgment. The Additional Commissioner was obviously not justified in levying interest or in imposing any penalty in excess of ₹ 10,000/- relying upon the provisions of Rule 96ZO as well as other rules which have now declared as ultra vires by the Hon'ble Apex Court in Shree Bhagwati Steel Rolling Mills - the levy or upholding of interest under Rule 96ZO of the Central Excise Act is an exercise in excess of jurisdiction. Similarly, we are also satisfied that the levy or upholding of penalty in excess of ₹ 10,000/- is also an exercise in excess of jurisdiction. To that extent, there is no necessity for relegating the Petitioner to avail an alternate remedy of appeal to the CESTAT. The impugned order to the extent it levies interest and penalty (in excess of ₹ 10,000/-) is therefore set aside. The impugned orders are modified to the aforesaid extent only - In so far as the rest of the issues are concerned, the impugned order is not interfered with but liberty is granted to the Petitioner to avail the alternate remedy by way of an appeal to the CESTAT - Appeal allowed in part.

Summary

Issues:
Challenge to order dated 27.02.2018 by Commissioner (Appeals), Central GST and Customs, Goa. Preliminary objection to maintainability of the petition. Consideration of annual capacity of production based on actual power supply. Imposition of interest and penalty under Rule 96ZO(3) of the Central Excise Rules, 1944. Validity of interest and penalty provisions under Rules 96ZO, 96ZP, and 96ZQ of the Central Excise Rules, 1944.

Analysis:

The petitioner challenged the order dated 27.02.2018 by the Commissioner (Appeals), Central GST and Customs, Goa, upholding the demand, interest, and penalties imposed. The respondent raised a preliminary objection regarding the maintainability of the petition, suggesting the petitioner should pursue an appeal to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) as per the impugned order. The petitioner contended that the determination of annual production capacity should consider actual power supply interruptions, not just sanctioned power supply. This contention was not adequately addressed in the impugned order, despite being crucial and previously highlighted in a writ petition. The court advised the petitioner to appeal to CESTAT for this issue.

The petitioner further argued that the interest and penalty imposed were invalid, citing the Supreme Court's ruling in Shree Bhagwati Steel Rolling Mills case. The court upheld this argument, declaring the provisions of Rule 96ZO(3) of the Central Excise Rules, 1944, along with other related rules, as ultra vires and excessive. The court referenced specific observations from the Supreme Court's judgment, emphasizing the limitations on penalty amounts set by the Central Excise Act and the arbitrary nature of the impugned rules. Consequently, the court found the imposition of interest and penalty exceeding ?10,000 to be unjustified and beyond jurisdiction.

The court concluded that the impugned orders were modified to set aside the interest and penalty exceeding ?10,000, in line with the Supreme Court's ruling. However, the court clarified that it did not assess the appropriateness of imposing a penalty up to ?10,000. The petitioner was granted the liberty to challenge the penalty amount within ?10,000 through an appeal if desired. The rest of the issues in the impugned order were left undisturbed, with the petitioner advised to pursue an appeal to CESTAT for further grievances. The rule was made partly absolute with no costs awarded in the present case.