2006 (10) TMI 163 - HC - Central Excise

CENVAT - Demand for interest - paying excise duty while clearing the goods from time to time as per Rule 173G - few defaults - HELD THAT - The fact however remains, that principles of natural justice require that the petitioner ought to be issued a Show Cause Notice as to why the interest amount should not be claimed from it and after affording a hearing that liability ought to be decided. That has not been done which is clearly contrary to the judgment of the Apex Court in Madhumilan Syntex 1988 (5) TMI 38 - SUPREME COURT . That was particularly necessary in the fact of the present case where the petitioner has chosen to follow one of the options given by the Revenue and the demand for interest was being raised after a good number of years. As far as that aspect is concerned, in our view, tlie submissions of Mr. Patil deserve to be accepted. The petitioner was entitled to at-least show cause for which he had to be given an opportunity. Thus, we interfere with the demand Notices and quash and set aside the detention Memo. Consequently, the goods will be released The respondents may issue a show cause notice to the petitioner as to why the interest as claimed should not be recovered and then after affording a hearing and considering the defence, pass appropriate orders. Rule is made absolute in the aforesaid terms.

Summary

Issues:
Challenge to recovery of interest amount by respondents through letters and detention memo.

Analysis:
The petitioner, a company, challenged the action by respondent Nos. 2 to 4 for recovering interest amount through various communications. The petitioner had paid excise duty but faced defaults in July-September 2000, leading to interest payment obligations. The Deputy Commissioner directed a change in payment method, which the petitioner followed. However, years later, a notice demanded a substantial interest amount, leading to a detention memo for non-payment. The petitioner argued it followed permissible methods and deserved a hearing, citing relevant case laws.

The respondents contended that the petitioner's reliance on case laws was misplaced, emphasizing Rule 173G of the Central Excise Rules, 1944. They argued that the reference to CENVAT in the Deputy Commissioner's letter was erroneous and impermissible under sub-clause 1(e) of Rule 173G. The respondents highlighted the consequences of defaulting on payment obligations as per the rule.

The Court acknowledged the merits of the demand and the petitioner's defense but stressed the importance of natural justice. It held that the petitioner should have been issued a Show Cause Notice and given a hearing before determining the liability for the interest amount. The Court found the lack of such procedural fairness contrary to established legal principles, particularly given the petitioner's compliance with one of the revenue's options and the delayed demand for interest. Consequently, the Court set aside the demand notices and detention memo, directing the respondents to issue a show cause notice, afford a hearing, and then decide on the interest recovery.

In conclusion, the Court intervened based on the principles of natural justice, requiring a fair opportunity for the petitioner to present its case before any determination on the interest recovery. The judgment emphasized the importance of procedural fairness and the need for a proper hearing before deciding on financial liabilities.