2006 (8) TMI 17 - AT - Central Excise

Central Excise Delay in payment of duty on monthly basis Maximum penalty under Rule 27 of C.E. Rules, 2002 is Rs. 5000/- - Interest of Rs. 1000/- per day, which ever is higher occur in Rule 8(3) are ultra vires the provision of Sec 11AB (1) of C.E. Act, 1944, hence, not enforceable

Issues Involved:
1. Withdrawal of the facility to pay Central Excise duty in installments.
2. Imposition of penalty under Rule 27 of the Central Excise Rules, 2002.
3. Confirmation of interest demand under Rule 8(3) of the Central Excise Rules, 2002.
4. Allegation of retrospective application of Rule 8(3).
5. Validity of the phrase "or Rs. 1,000/- per day whichever is higher" in Rule 8(3).

Detailed Analysis:

1. Withdrawal of the Facility to Pay Central Excise Duty in Installments:
The appellant defaulted in paying Central Excise duty on due dates as required by Rule 8(1) during February 2002, April 2002, and March 2003, resulting in the withdrawal of the facility to pay in installments for two months. Rule 8(4) mandates forfeiture of this facility if defaults occur more than twice in a financial year. The appellant's defaults in 2001-02 and 2002-03 rendered them liable under Rule 8(4).

2. Imposition of Penalty under Rule 27:
The Deputy Commissioner imposed a penalty of Rs. 10,000/- under Rule 27, which was upheld by the Commissioner (Appeals). However, Rule 27 prescribes a maximum penalty of Rs. 5,000/-. The tribunal reduced the penalty to Rs. 5,000/- while upholding other findings regarding the forfeiture of the facility for two months.

3. Confirmation of Interest Demand under Rule 8(3):
Interest was calculated at varying rates for different periods: 24% per annum from 16-3-2004 to 12-5-2002, 16% per annum from 13-5-2002 to 31-3-2003, and Rs. 1,000/- per day from 1-4-2003. The Commissioner (Appeals) confirmed the interest demand of Rs. 3,04,930/-. However, it was noted that interest could not exceed the amount of duty, reducing the liability to Rs. 1,80,043/-.

4. Allegation of Retrospective Application of Rule 8(3):
The appellant contended that the provision of Rs. 1,000/- per day interest could not be applied retrospectively. The tribunal found that the provision was applied only from 1-4-2003 onwards, and for earlier periods, interest was calculated as per existing notifications. Thus, no retrospective application was given.

5. Validity of the Phrase "or Rs. 1,000/- per day whichever is higher" in Rule 8(3):
The tribunal examined Rule 8(3), which imposes interest at 2% per month or Rs. 1,000/- per day, whichever is higher. It was determined that this provision was beyond the scope of Section 11AB of the Act, which authorizes interest rates between 10% and 36% per annum. The phrase "or Rs. 1,000/- per day whichever is higher" was deemed ultra vires and unenforceable. The tribunal cited the Rajasthan High Court's decision in Lucid Cabids Ltd. v. Union of India, which struck down this provision as it altered the nature of interest from compensatory to penal.

Conclusion:
The tribunal confirmed the impugned order on all other points but modified the interest liability to be calculated at 2% per month, excluding the Rs. 1,000/- per day provision. The case was remanded to the adjudicating authority to recalculate interest based on this judgment. The appeal was partly allowed with the above modifications.

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