2010 (6) TMI 238 - AT - Central Excise

Interest - During the period from April 2003 to March 2004, while making such deposit there was some delay in every month. Department took a view that for such delayed payment, the respondent was required to pay 2% or Rs. 1000/- per day, which ever is higher in terms of Rule 8(3) of Central Excise Rules, 2002. Accordingly, an amount of Rs. 1,36,000/- was demanded as interest from the respondents. On an appeal filed by the respondents, Commissioner (Appeals) set aside the demand on the ground that assessee has sufficient balance in the PLA all through the period and therefore, no interest is needed to be paid. Held that though on equity ground assessee have a strong case but a strict legal interpretation required that the duty payment had to be considered as having been made only when debit is made in PLA or when TR 6 Challans evidencing payment is submitted. Assessee liable to pay 2% interest for period of delay.

Summary

Issues:
1. Liability for payment of interest on delayed duty deposit.
2. Interpretation of Rule 8(3) of Central Excise Rules, 2002.
3. Justification of interest rate and calculation method.
4. Consideration of PLA balance for waiver of interest.
5. Legal vs. equitable considerations in duty payment.

Analysis:
1. The case involved a dispute regarding the liability of the respondent to pay interest on delayed duty deposit. The respondents, engaged in manufacturing fertilizer, received inputs without duty payment for use in manufacturing dutiable goods. However, when these inputs were used for non-dutiable purposes like electricity generation, duty payment was required. The Department demanded interest of Rs. 1,36,000 for delays in monthly duty deposits during April 2003 to March 2004.

2. The issue of interest rate calculation under Rule 8(3) of Central Excise Rules, 2002 was crucial. The Hon'ble Rajasthan High Court had previously held that the provision in Rule 8(3) prescribing an interest rate of Rs. 1000 per day or 2% (whichever is higher) was ultra vires. Consequently, the demand for interest at the rate of Rs. 1000 per day was deemed unsustainable.

3. The judgment emphasized the justification for charging interest at the rate of 2% as per the Rule. The Commissioner rightly considered the substantial balance in the respondents' PLA account, exceeding Rs. 10 Lakhs, throughout the period. The balance represented the amount already deposited by the respondents. The delay in payment was attributed to the belief that payments for non-manufactured goods could not be debited in the PLA.

4. The consideration of the PLA balance for waiving interest was significant. While acknowledging the equitable grounds favoring the respondents, a strict legal interpretation was deemed necessary. The Tribunal clarified that duty payment should be recognized only upon debit in the PLA or submission of TR6 Challans as evidence of payment. Consequently, the respondents were held liable to pay 2% interest for the delay period.

5. The judgment highlighted the distinction between legal and equitable considerations in duty payment. Despite acknowledging the strong case of the respondents from an equitable perspective, the Tribunal emphasized adherence to legal interpretations and statutory provisions. The respondents agreed to quantify the amount subject to verification by the appropriate Central Excise authority, leading to the appeal filed by the Revenue being decided in favor of charging 2% interest for the delay period.