2014 (9) TMI 240 - HC - Central Excise

Interest u/s 11AA - delayed payment of duty - Held that - liability for payment of interest on delayed payment of duty has been imposed where a person chargeable with duty determined under sub-section (2) of Section 11A, fails to pay such duty within three months from the date of such determination. The proviso, however, makes such provision in case of those, who are chargeable with duty determined under sub-section (2) of Section 11A before the date on which Finance Bill, 1995, receives the assent of the President, failed to pay such duty within three months from such date. The Explanation 1, however, stipulates that where the duty determined to be payable is reduced by the Commissioner (Appeals), Appellate Tribunal, National Tax Tribunal or, as the case may be, the court, the date of such determination shall be the date on which an amount of duty is first determined to be payable. If that be so, proviso to sub-section (1) of Section 11AA of the Act of 1944 on its application shows that the petitioner failed to pay duty within three months from the date of determination by the Tribunal. The order of the Tribunal passed on 22-5-1998. The petitioner was, therefore, under an obligation to pay the amount of duty within a period of three months thereof. However, the petitioner admittedly paid the remaining amount of duty only on 24-10-1998 whereas period of three months expired on 22-8-1998. Thus, there was a delay in payment of duty by a period of a little less than two months. For this period i.e. from 22-8-1998 to 24-10-1998, the petitioner is liable to make payment of interest on delayed payment of duty as required under Section 11AA of the Act of 1944. impugned demand notice dated 22-12-2003 is held illegal and set aside - Decided partly in favour of assessee.

Summary

Issues:
1. Validity of notice demanding interest on delayed payment of duty under Section 11AA of the Central Excise Act, 1944.

Analysis:

Issue 1: Validity of notice demanding interest on delayed payment of duty under Section 11AA of the Central Excise Act, 1944

The petitioner, a steel products manufacturer, was found to have removed goods without paying excise duty as required by law. The Collector, Central Excise, confirmed duty payment and issued a demand notice. The petitioner appealed to the Customs, Excise and Gold (Control) Appellate Tribunal, resulting in a reduction of duty. Subsequently, the authorities initiated proceedings for recovery of interest on delayed payment. The petitioner challenged the demand notice, arguing that interest liability arose only after the Tribunal's order reducing duty on 22-5-1998, as per Section 11AA inserted by the Finance Act of 1995. The respondent contended that the duty was confirmed earlier, and the delay in payment was significant.

The Court examined Section 11AA, which imposes interest if duty isn't paid within three months of determination. The proviso applies to cases before the Finance Bill, 1995, and Explanation 1 clarifies the date of determination when duty is reduced by appellate authorities. The Court held that the date of final determination after appeal governs interest liability. Rejecting the revenue's argument on different heads of duty, the Court applied a favorable interpretation to the petitioner. Explanation 2, for increased duty, was deemed inapplicable.

The Court concluded that the petitioner's interest liability commenced from the Tribunal's order on 22-5-1998, not the Collector's order in 1991. The petitioner's delay in paying duty beyond three months from the Tribunal's order led to interest liability. The demand notice was deemed illegal, and the petitioner was directed to pay interest only for the period from 22-8-1998 to the actual payment date. The petition was allowed, with no costs awarded.

In summary, the Court clarified the application of Section 11AA regarding interest on delayed payment of duty, emphasizing the date of final determination post-appeal for interest calculation, and ruled in favor of the petitioner's reduced interest liability based on the Tribunal's order.