2005 (8) TMI 134 - HC - Central Excise

Interest on delayed payment of duty or erroneous refund - challenge the vires of Rule 8(3) of the Central Excise Rules 2002 - HELD THAT - Section 11AB clearly relates to charge of rate of interest related to amount in default for the period the assessee remains in default of payment. Permitting charge of interest at the rate of Rs. 1, 000/- per day is not computable in relation to amount of Duty in default. Whether Rs. 1, 00, 000/- is not paid in time or Rs. 1, 000/- is not paid in time the interest chargeable under the Rules remains Rs. 1, 000/- per day. Such a device is not permitted by Parent Act. Therefore to the extent rule provides other than the rate of interest as an alternative mode of levy of interest per day not connected with the amount of duty in default is beyond enabling power of the Parent Act. The Rule 8(3) to the extent it provides after providing the rate of interest chargeable on delayed payment of duty an alternative mode to provide higher ceiling limit is clearly in violation of Rule 11AB and cannot be sustained. Since the alternative mode is severable from the other part of the provision without affecting its efficacy it does not require that the entire rule is to be struck down. We therefore hold that Rule 8(3) to the extent it provides levy of interest at the rate of Rs. 1, 000/- which is higher as alternative to charge of interest @ 2% on the amount of Duty means to be understood as 24% per annum on the amount of Duty in default is ultra vires to Section 11AB of the Act and cannot be sustained and is held inoperative. Accordingly the writ petition is allowed. The part of Rule 8(3) which includes expression at the rate of two per cent per month or rupees one thousand per day whichever is higher is held to be invalid. Consequently interest chargeable on delayed payment had to be only at the rate of 2% per month or for that matter 24% per annum as notified by the State Government in terms of the Section 11BC which is between the permissible limits in terms of Section 11AB. Consequently the demand notices are quashed and interest on delayed payment has to be recomputed only to the extent it is referred to the rate of interest @2% per month or 24% per annum under Rule 8(3). There shall be no order as to costs.

Summary

Issues:
1. Challenge to the vires of Rule 8(3) of the Central Excise Rules, 2002.
2. Interpretation of Section 11AB of the Central Excise Act, 1944.
3. Validity of the provision for interest calculation under Rule 8(3).
4. Discrepancy between the Rule and the Parent Act regarding interest rates.
5. Determining the correct method for charging interest on delayed payments.

Issue 1: The petitioner challenged the vires of Rule 8(3) of the Central Excise Rules, 2002, questioning the phrase "Rs. 1,000/- per day or whichever is higher" as arbitrary and violative of constitutional articles. The contention was that the rule exceeded the authority granted by the parent Act in quantifying interest charges.

Issue 2: Section 11AB of the Central Excise Act allows for interest on delayed duty payment, with the Central Government authorized to fix the rate. The rule in question, Rule 8(3), imposed interest at a rate of two percent per month or Rs. 1,000 per day, whichever is higher, leading to a dispute over the method of interest calculation.

Issue 3: The petitioner argued that the rule's provision for interest calculation was beyond the scope of the Parent Act, as it did not align with the uniform rate of interest intended by Section 11AB. The rule's alternative ceiling for interest rates was deemed arbitrary and not in line with the Act's provisions.

Issue 4: The judgment highlighted that the Central Government's discretion in fixing interest rates within the prescribed limits of 10% to 36% per annum aimed to ensure uniformity in interest charges. Deviating from this uniformity by providing an alternative ceiling of Rs. 1,000 per day was considered a violation of the Act's intent.

Issue 5: The Court concluded that Rule 8(3) was ultra vires to Section 11AB of the Act and held the provision invalid. It was determined that interest on delayed payments should be calculated at a rate of 2% per month or 24% per annum, as notified by the State Government within the permissible limits of the Act.

In conclusion, the judgment declared the part of Rule 8(3) providing for interest at Rs. 1,000 per day as invalid, emphasizing the need for adherence to the uniform rate of interest prescribed by the Central Government. The writ petition was allowed, demand notices were quashed, and interest on delayed payments was to be recomputed based on the correct interest rate as per the Act.