2024 (5) TMI 1275 - HC - Central Excise

Levy of interest and penalty on the late payment of Central Excise duty as envisaged in Rule 8(3) and Rule 8(3A) of the Central Excise Rules 2002 - goods exempted for payment of duty under N/N. 20/2007-CE dated 25.04.2007 - Interpretation of taxing statutes and procedural rules. Interest and penalty - HELD THAT - Apparent that once the goods cleared by an eligible industrial unit have been exempted from payment of duty subject to the limitation specified in the Notification the question of payment of any duty by an eligible industrial unit does not arise and consequently no interest and/or penalty can be charged for non-payment of such duty within time. The provisions for payment of duty and the time prescribed for such payment of duty in the Central Excise Act 1944 are applicable in respect of goods which are excisable to Central Excise duty and the manufacturer is liable to pay such duty. The said provision cannot be made applicable in respect of duty which is exempted by issuance of Notifications under Section 5A of the Central Excise Act 1944. Since in the present case the petitioner was entitled to exemption by virtue of Notification No. 20/2007 read with Notification 20/2008 the question of payment of any such duty and consequently the levy of interest for the purported delay in payment of duty does not arise. In the present case the petitioner has no liability of payment of any duty because of Notification No. 20/2007 read with Notification No. 20/2008. Therefore the petitioner cannot be saddled with the liability of payment of interest and penalty for delayed payment of duty which was exempted. Interpretation of taxing statutes and procedural rules - HELD THAT - The Assistant Commissioner failed to consider that Rules are framed to carry out the purposes of an Act. Interest is a substantive provision of the taxing statute and unless there is any provision in the Act for levy and charge of interest no interest can be charged on the basis of any Rules framed under the Act. Since no interest is payable in respect of duty which is exempted under the Act the liability of interest and penalty cannot be fastened on an eligible unit which is exempted from payment of duty by virtue of Notification No. 20/2007 read with Notification No. 20/2008. Apparent that the Assistant Commissioner failed to appreciate that the refund of duty paid is also an exemption from payment of duty. Since in the present case Notification Nos. 20/2007 read with 38/2008 provided for refund of duty paid after verification of the same by excise authority the same will not make the duty leviable or payable under the Act so as to attract levy of interest and penalty for delay in making payment of the same - It is a well settled law that taxing statutes are to be interpreted strictly and while interpreting the taxing statue one must have argued to the strict letter of law and not merely to the spirit of law and one cannot be taxed by inference or by analogy. In the present case the provision of Sections 11AA and 11AC of the Central Excise Act 1944 are very clear and there is no ambiguity in the provisions of the Act. However even for the sake of argument if there is an ambiguity the benefit of the same must be extended to the tax payer - Rule 8(3) and 8(3A) of the Central Excise Rules 2002 cannot be made applicable in support of the levy of the interest and penalty for delayed payment of duty which is exempted in terms of notification issued under Section 5A of the Act. As discussed above Rules are framed to carry out the purposes of the Act. If there is no substantive provision in the Act for levy of interest and penalty the interest and penalty cannot be levied on the basis of any provisions of Rules. The Respondent Authorities committed a manifest error in law in levying penalty and interest relying on the provisions of Rules 8(3) and 8(3A) of the Central Excise Rules 2002 in the absence of a substantive provisions of the Act - this Court is of the opinion that interest and penalty cannot be levied for late payment of duty on goods which is exempted from payment of duty. The impugned orders levying interest and penalty on the late payment of exempted duty were set aside and quashed - Petition allowed.

Summary

Issues Involved:
1. Levy of interest and penalty on late payment of duty.
2. Entitlement to exemption under Notification No. 20/2007-CE and subsequent notifications.
3. Applicability of Rule 8(3) and 8(3A) of the Central Excise Rules, 2002.

Summary:

Levy of Interest and Penalty on Late Payment of Duty:
The petitioner challenged the orders levying interest and penalty on the late payment of duty, which was exempted under Notification No. 20/2007-CE dated 25.04.2007. The court held that once goods are exempted from payment of duty, the question of payment of any duty does not arise, and consequently, no interest or penalty can be charged for non-payment of such duty. The provisions of the Central Excise Act, 1944, and the Central Excise Rules, 2002, do not mandate the payment of duty within a particular date for exempted goods. Therefore, no interest or penalty can be imposed for any purported delay in making payment of such duty.

Entitlement to Exemption under Notification No. 20/2007-CE:
The petitioner relied on the promises and assurances made in the Industrial Policy, 2007, and the Notifications issued in pursuance thereto, setting up its manufacturing unit in Assam. The court noted that the exemption contained in the Notification was to apply to new Industrial Units and those undertaking substantial expansion. The court held that the refund of duty paid is also an exemption from payment of duty. Since the Notifications provided for a refund of duty paid after verification by excise authorities, the same does not make the duty leviable or payable under the Act so as to attract interest and penalty for delay in payment.

Applicability of Rule 8(3) and 8(3A) of the Central Excise Rules, 2002:
The Assistant Commissioner referred to Rules 8(3) and 8(3A) of the Central Excise Rules, 2002, for upholding the levy of interest and penalty. The court held that these rules are procedural and cannot levy interest or penalty for delayed payment of duty on exempted goods unless the Act provides. Interest and penalty are substantive provisions of the taxing statute, and no interest can be charged without a substantive provision in the Act. The court emphasized that taxing statutes must be interpreted strictly, and any ambiguity should benefit the taxpayer.

Conclusion:
The court concluded that the Respondent Authorities committed a manifest error in law in levying penalty and interest relying on the provisions of Rules 8(3) and 8(3A) of the Central Excise Rules, 2002, in the absence of substantive provisions in the Act. The impugned orders levying interest and penalty on the late payment of duty, which was exempted, were set aside and quashed. The writ petitions were allowed, and the writ petitions were disposed of accordingly.