2014 (7) TMI 983 - AT - Central Excise

Demand of interest - whether appellants herein are required to be saddled with the interest under the provisions of un-amended Section 11AB before 11.05.2001 of the erstwhile Central Excise Act, 1944. - Held that - the demands which are arising for the clearances prior to 11.5.2001, the interest under section 11AB shall be payable w.e.f. 11.05.2001 if the payments have been made on or after 11.5.2001 and for the clearances effected from 11.05.2001 the interest under section 11AB shall be paid from the date of duty payable on such clearances and we hold accordingly.

Summary

Issues Involved:
1. Confirmation of duty demand and penalties imposed on M/s Darshak Ltd. and M/s Nirayu Pvt. Ltd.
2. Applicability of interest under Section 11AB of the Central Excise Act, 1944 before and after 11.05.2001.
3. Revenue neutrality and its impact on penalties and interest.

Detailed Analysis:

1. Confirmation of Duty Demand and Penalties:
The appellants, M/s Darshak Ltd. and M/s Nirayu Pvt. Ltd., were engaged in the manufacture of pharmaceutical products. During the period from 01.07.1997 to 31.08.2001, M/s Darshak sent various inputs to M/s Nirayu and M/s Paushak on returnable gate passes without reversing the credit or paying duty. Show cause notices were issued, and demands were confirmed against both companies with penalties imposed under Section 11AC of the Central Excise Act, 1944, and related rules. The Tribunal upheld the demands but allowed credit of such duty to the recipient units and reduced the penalties, considering them too harsh given the entries were recorded in private records.

2. Applicability of Interest under Section 11AB:
The core issue was whether interest under the un-amended Section 11AB before 11.05.2001 was applicable. The Tribunal noted that Section 11AB, prior to 11.05.2001, applied only in cases involving fraud, collusion, or willful misstatement. Post-11.05.2001, it applied to all cases of delayed duty payment. The Tribunal concluded that in revenue-neutral cases, where the duty was paid but credited to sister units, the non-payment of duty could not be attributed to fraud or willful misstatement. Therefore, interest under Section 11AB for clearances before 11.05.2001 could not be demanded.

3. Revenue Neutrality:
The Tribunal emphasized that the entire issue was revenue neutral since the duty paid by M/s Darshak was credited to its sister concerns, making the situation revenue neutral. This was supported by the Hon'ble Supreme Court and Gujarat High Court judgments, which held that in revenue-neutral cases, penalties and interest should not be imposed. The Tribunal also noted that the High Court admitted the appeal only on the issue of penalties, not on the credit availability to recipient units, reinforcing the revenue-neutral nature of the case.

Conclusion:
The Tribunal held that for demands arising from clearances before 11.05.2001, interest under Section 11AB is payable only from 11.05.2001 if payments were made on or after this date. For clearances from 11.05.2001 onwards, interest is payable from the date duty was due. Both appeals were disposed of on these terms.

(Pronounced in Court on 16.07.2014)