2014 (11) TMI 781 - HC - Central Excise

Delay in payment of excise duty - Demand of interest u/s 11AB - Rate of interest - Held that - Part of Rule 8(3) of the Central Excise Rules, 2002, which was prevailing at the relevant time as per Notification No. 12/2003, dated 1st March 2003, which includes expression, at the rate of two per cent per month or rupees one thousand per day, whichever is higher is held to be invalid and consequently, it is held that the interest chargeable on the delayed payment had to be only at the rate of two per cent per month, or for that matter twenty four per cent per annum, as notified by the Government at the relevant time in terms of Section 11AB of the Central Excise Act, and consequently, the impugned demand notices are also quashed and set aside. - Decided in favour of assessee.

Summary

Issues:
Controversy over interest payment on delayed excise duty between May 2003 to August 2004 and December 2003 to February 2004 under Rule 8 of Central Excise Rules, 2002.

Analysis:
The judgment addresses the challenge to sub-rule (3) of Rule 8 of the Central Excise Rules, 2002, concerning the interest rate on delayed payment of excise duty between specific periods. The petitioners contended that the phrase "rupees one thousand per day, or whichever is higher" in the rule was ultra vires Section 11AB of the Central Excise Act, 1944. They relied on a Rajasthan High Court decision, which held that interest should be charged at a flat rate of two per cent per month or twenty-four per cent per annum, as per the permissible limit under the Act. The Department did not dispute the applicability of the Rajasthan High Court decision to the present case.

The Court noted the amendments to Rule 8 of the Central Excise Rules, particularly the change introduced by Notification No. 12 of 2003, which increased the interest rate to two per cent per month or rupees one thousand per day, whichever is higher. This amendment was challenged, and the Rajasthan High Court had declared part of Rule 8(3) invalid, holding that interest should be charged at a flat rate of two per cent per month or twenty-four per cent per annum. The High Court agreed with this interpretation, emphasizing the adherence to Section 11AB of the Act.

Consequently, the Court held that the disputed part of Rule 8(3) was invalid, and the interest on delayed payment should be calculated at a flat rate of two per cent per month or twenty-four per cent per annum, as per the statutory provisions. The demand notices issued by the Department were quashed, as the petitioners had already paid interest at the correct rate. The petitions were allowed, and no costs were awarded in the circumstances.