2016 (11) TMI 1225 - AT - Central Excise

Interest on delayed payment of interest - Held that - Rule 8(3A) states that it shall be deemed that such goods have been cleared (during the period of default) without payment of duty and the consequences and penalties shall follow. Interestingly, though Rule 8(3A) speaks about paying duty for each consignment at the time of removal, it is seen that department has not calculated the duty accordingly. Instead, interest alone is demanded. The demand of interest is seen calculated on the duty already paid by appellant every month without any default. In the instant case, the department has accepted the duty paid by appellant even though the duty was not paid consignment wise. For reasons not known and not clear, only interest is seen demanded. If Rule 8(3A) is to be applied, there should be determination/demand of duty applying the legal fiction, and then the consequence of interest and imposition of penalty should follow. Generally interest follows the principal. Without principal amount there cannot be demand of interest alone. When there is no demand of duty for violation of Rule 8(3A), and when the duty paid is accepted by department, then the legal fiction provided in Rule 8(3A) having been not invoked in the show cause notice, I do not find the claim of interest alone would be sustainable. Extended period of limitation - Held that - it is clear that default to pay duty in August, 2010 was only a bonafide mistake. I find that the department has not placed any evidence to show that there was any suppression of facts, wilful miss-statement or fraud on the part of appellant with intent to evade payment of duty. Therefore, I find that the show cause notice is time barred. I hold that the demand being time barred is unsustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Delay in payment of central excise duty.
2. Calculation and demand of interest for delayed payment.
3. Application of Rule 8(3A) of Central Excise Rules, 2002.
4. Extended period of limitation for issuing show cause notice.

Analysis:

Issue 1: Delay in payment of central excise duty
The appellant, engaged in manufacturing edible refined Palm Oil, defaulted in paying central excise duty amounting to ?23,97,580/- for the month of August 2010. The appellant attributed the delay to a mistake in the cheque amount, which was not cleared by the bank due to non-rounding off decimals. The appellant paid the duty on 23-10-2010 and interest of ?41,843/- on 31-03-2012. The department issued a show cause notice proposing interest demand and penalty without determining or demanding the duty amount.

Issue 2: Calculation and demand of interest for delayed payment
The appellant argued that the demand for interest was unsustainable as there was no determination of duty in the show cause notice. The department calculated interest from October 2010 to March 2012 on the assumption that duty was not paid consignment-wise. However, the appellant contended that they paid the duty correctly each month, and interest should not be demanded without a duty determination. The department's demand of interest without demanding duty was deemed legally improper.

Issue 3: Application of Rule 8(3A) of Central Excise Rules, 2002
Rule 8(3A) mandates payment of duty for each consignment at the time of removal beyond 30 days from the due date. The department demanded interest on the duty already paid by the appellant each month, considering a default in payment. However, the legal fiction of Rule 8(3A) was not invoked correctly in the show cause notice, leading to an unsustainable claim of interest alone without a duty determination.

Issue 4: Extended period of limitation for issuing show cause notice
The show cause notice was issued invoking the extended period of limitation. The appellant's default in August 2010 was deemed a bonafide mistake, and the department failed to provide evidence of suppression, willful misstatement, or fraud. Consequently, the show cause notice was considered time-barred, and the demand was deemed unsustainable.

In conclusion, the appellate tribunal held that the demand was time-barred and set aside the impugned order, allowing the appeal with consequential reliefs. The judgment emphasized the importance of proper application of legal provisions and the necessity of duty determination before demanding interest.