Customs, Excise and Gold Tribunal - Delhi
Automotive India (Raipur) Pvt. Ltd. vs Commissioner Of Central Excise on 21 August, 2006
ORDER
R.K. Abichadani, J. (President)
1. The appellant has challenged the order of the Commissioner (Appeals) made on 20.07.2004 upholding the order in original dated 18.03.2004 passed by the Deputy Commissioner withdrawing the facility to pay central excise duty in instalments under Rule 8 of the Central Excise Rules, 2002 for a period of two months and imposing penalty of Rs. 10,000/- (Rupees ten thousand only) under Rule 27 of the rules as well as confirming the interest demand of Rs. 3,04,930/- (Rupees three lacs four thousand nine hundred and thirty only) while appropriating Rs. 29,014/-(Rupees twenty nine thousand and fourteen only) paid on 8.11.2003 by the party.
2. The appellant was availing the facility of payment of central excise duty on monthly basis as per Rule 8(1) of Central Excise (No.2) Rules, 2001 (now Central Excise Rules, 2002). The assessee was claiming SSI exemption under the Notification No. 9/2002-CE (NT) dated 1.03.2002 passed on the value of such clearances in a financial year of the goods manufactured by the assessee, of the nature falling under Chapter Heading No. 73 and 79 of the Tariff.
3. It appeared that the assessee did not pay the duty on due dates as required by Rule 8(1) during the months of February 2002, April 2002 and March 2003. The assessee defaulted more than thirty days twice in the financial year 2002-03 and once in the financial year 2001-02 in the payment of the duty. Therefore, a show cause notice was issued for withdrawing the facility of payment by instalments, imposing penalty under Rule 27 and recovering interest under Rule 8(3) of the said rules.
4. Thereafter, in reply to the show cause notice it was pleaded that the assessee had already paid the duty amount through PLA on receipt of letter from the range office for payment of duty of Rs. 1,80,043/- on 09.07.2003 i.e. before the issuance of the show cause notice. On the interest aspect, it was pleaded that the calculation of interest amount of Rs. 3,04,930/- in the show cause notice was wrong and that clause for payment of interest at the rate of Rs. 1000/- per day was not applicable in their case under Rule 8(3) of the rules since it had come into effect from 01.04.2003.
5. Rule 8(4) of the said rules provided that if the assessee defaulted in payment of any one instalment and the same was discharged beyond the period of thirty days from the date on which the instalment was due in a financial year or in payment of instalment by the due date for the third time in a financial year, whether in succession of otherwise, then the assessee shall forfeit the facility to pay the dues in instalments for a period of two months as provided thereunder. Admittedly, in the present case, the assessee defaulted more than thirty days twice in a financial year 2002-2003 and once in the financial year 2001-2002 in payment of the central excise duty. Therefore, the assessee rendered itself liable for the defaults under Rule 8(4) of the said rules.
5.1 Interest was payable at the rate of 24% for the period from 16.03.2004 to 12.05.2002 as per the Notification No. 40/2000-CE(NT) dated 13.05.2000, and at 16% for the period 13.05.2002 to 31.03.2003 as per the Notification No. 19/2002-CE (NT) dated 13.05.2002, and for the period of default from 11.04.2003 to 08.07.2003 at the rate of Rs. 1000/- per day from 01.04.2000 under Rule 8(3) of the said rules. The liability for interest was worked out on this basis at Rs. 3,04,930/-. This has been confirmed by the Appellate Commissioner by working out the details of the amounts payable through the PLA due dates for payment, actual dates of payment and delay in payment in making the payments. The Commissioner (Appeals) held that the rates of interest were correctly applied and cannot be treated as retrospective application as alleged by the appellant, because the rates of interest adopted were applicable on the dates of default in discharging the liability arising as a consequence of such default. It was also held that the rates were now explicitly laid down in the rule and hence there was no scope for any interpretation as resorted to by the assessee. The Appellate Commissioner, however, held that the interest could not have exceeded the amount of duty as provided by the proviso to Sub-rule (3) of Rule 8 of the said rules. Therefore, the interest was worked out, at the level of the total duty, at Rs. 1,80,043/- which according to the Commissioner (Appeals) was leviable from the appellant. The Commissioner (Appeals) did not find any substance in the contention that the show cause notice was time-barred, and concluded that it was not time-barred since it was not a demand of duty under Section 11A of the Act for which period of limitation was fixed thereunder.
6. When the matter was called for final hearing, none was present for the appellant both on 14.8.2006 and today and the matter has been heard with the assistance of the learned authorized representative for the department who has referred to the relevant material on record and the impugned orders.
7. As per the grounds of appeal, the appellant has contended that the Commissioner (Appeals) has given retrospective effect to the provisions of Rule 8 wherein interest at the rate of Rs. 1000/- per day has been stipulated. It has been contended that when the provision itself was not in force, it could not have been given a retrospective effect, since no specific retrospective was expressed or necessarily implied. It is contended that the liability to pay interest on the part of the assessee was only to the extent of Rs. 19,014/- as per their calculation chart. In support of the contention that the rule had no retrospective effect, the appellant has relied upon the following decisions in the appeal memo:
(a) Cannore Spg. & Wvg. Mills Ltd. .
(b) Ambalal v. Union of India .
(c) Re. Rangi International reported in 2002 (139) ELT 739 (GOI).
It is further contended that short payments had arisen due to genuine calculation mistakes and the appellant had accepted the same. They were filing regular returns and it was obligatory on the part of the officers to verify their returns and intimate discrepancy if any, so that the same could have been cleared within time. It is submitted that the basic contention of the appellant is that the law applicable on the date of default has to be applied and amendments to the law will not be applicable in respect of the prior period of the offence. Thus, separate interest liability has to be computed for each default. It is also submitted that short payment cannot be called a default. It is then contended that the appellant had already deposited duty before issuance of the show cause notice and there was, therefore, no question of imposition of penalty and interest. Reliance was placed on the decision of the Tribunal in CCE Madurai v. JKON ENGG. (P) Ltd. in support of their contentions.
8. From the material on record, it is abundantly established that the appellant had defaulted in paying the central excise duty on the scheduled dates as alleged in the show cause notice. Under Rule 8(1), the duty was required to be paid on the goods removed from the factory during the first fortnight of the month by the 20th of that month and on the goods removed during the second fortnight of the month by the 5th of the following month; except for March when it was to be paid by the 31st March. Default being committed, as contemplated by Sub-rule (4) of Rule 8, the facility to pay dues in installment was to be forfeited for a period of two months or till such date when all dues were paid, whichever was later. Rule 27 of the said rules provided that a breach of the rules, where no other penalty is provided under the Act or the rules, was punishable with a penalty, which may extend to Rs. 5000/- and with confiscation of the goods in respect of which the offence is committed. The authorities below, however, have imposed a penalty of Rs. 10,000/- under Rule 27 in the context of which the liability to pay penalty was alleged in the show cause notice, though the maximum penalty was prescribed at Rs. 5000/-. Therefore, the penalty will have to be reduced to Rs. 5000/- from Rs. 10,000/-. The rest of the findings on the question of forfeiting the facility for two months, of the authorities below are based on reliable material on record and given for cogent reasons, deserving to be upheld.
9. The only question that now remains for consideration is as to the interpretation of Rule 8(3) on the basis of which penalty at the rate of Rs. 1000/- per day has been imposed on the default committed after 1.4.2003 in payment of the due amount. Rule 8(3) reads as under:
Rule 8(3) If the assessee fails to pay the amount of duty by the due date, he shall be liable to pay the outstanding amount along with an interest at the rate of two per cent per month or rupees one thousand per day, whichever is higher, for the period starting with the first day after due date till the date of actual payment of the outstanding amount:
Provided that the total amount of interest payable in terms of this sub-rule shall not exceed the amount of duty which has not been paid by due date.
Provided Further that till such time the amount of duty outstanding and the interest payable thereon are not paid, it shall be deemed that the goods in question in respect of which the duty and interest are outstanding, have been cleared without payment of duty, and where such duty and interest are not paid within a period of one month from the due date, the consequences and the penalties as provided in these rules such follow, (emphasis added).
9.1 In the context of the above rule, it was contended on behalf of the Revenue that rate of Rs. 1000/- per day was clearly contemplated under the sub-rule and the authorities below had no option but to impose the same since it was higher than the interest at the rate of 2% on the outstanding amount of duty not paid by the due date. It appears from the record that the interest at the rate of Rs. 1000/- per day has been worked out only in respect of the relevant period falling within the purview of the said provisions which came into effect from 1.4.2003. Therefore, there was no retrospective effect given to the said provision, as contended by the appellant. For the earlier period, interest was worked out in accordance with the notifications, issued under Sub-rule (3) of Rule 8, as it existed at the relevant time. Under that Sub-rule (3) of Rule 8 as it read prior to the said amendment it was, inter-alia, provided that, on failing to pay the amount of duty by the due date, the assessee was liable to pay the outstanding amount with interest at the rates specified by the Central government by notification under Section 11AB of the Act. These notifications have been referred to in the impugned order in respect of the periods prior to 1.4.03. Thus, there is no retrospective effect given to the requirement of payment of interest at the rate of Rs. 1000/- per day introduced after 1.4.2003 by the substituted provision of Sub-rule (3) of Rule 8, which is applied only to the default from 1.4.03.
9.2 The said Sub-rule (3) of Rule 8 itself prescribed interest at the rate of 2% per month, which comes to 24% per year on the outstanding amount which will be within the parameters indicated by Sub-section (1) of Section 11AB which provides for interest on delayed payment of duty. As per Section 11AB(1), where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person who is liable to pay duty as determined under Sub-section (2) or has paid the duty under Section (2B) of Section 11A, shall in addition to the duty, be liable to pay interest at such rate not below 10% and not exceeding 36% per annum, as is for the time being fixed by the Central government by notification in the official gazette. Accordingly, the notifications were issued, and the duty was calculated for the periods covered by such notifications. However, in the substituted Sub-rule (3) of Rule 8 itself the interest rate of 2% per month has now been prescribed, w.e.f. 1.4.03 with a rider that if the amount of interest, worked out at the rate of 2% per month falls short of Rs. 1000/-, then, interest would be charged at Rs. 1000/- per month. This situation does not appear to have been contemplated by Section 11AB (1) of the Act and this portion of the rule providing for an amount to be recovered at the rate of Rs. 1000/- per day in cases where the interest amount falls short of the amount when charged at the rate of 2% per month, is clearly beyond the scope of Section 11AB of the Act. No such expropriatory recovery is at all contemplated by the parent Act, and even the power to frame rules conferred on the government, contained in Clause (ibb) of Sub-section (2) of Section 37 does not authorize framing of such a rule for charging interest at Rs. 1000/- per day if the amount worked out at the notified rate of 2% per month falls short of Rs, 1000/-. Under Clause (ibb) of Section (2) of Section 37, rules framed by the government may provide for charging or payment of interest on differential amount of duty which becomes payable or refundable upon finalization of all or any class of provisional assessments. This rule making power is obviously subject to the provisions of the Act and must be exercised to carry into effect the purposes of the Act.
9.3 The power conferred on the Central government by Section 11AB(1) is only of prescribing the rate of interest not below 10% and not exceeding 36% per annum. Therefore, the power to prescribe interest rate per annum, justifies that part of Sub-rule (3) of Rule 8 which fixes the rate of interest at 2% per month (which would worked out to 24% per annum). Once the interest is so worked out and notified by the Central government, there is hardly any scope for resorting to recovery of any amount in excess of such interest, on a plain reading of the provision of Section 11 AB.
9.4 There would be very starting results if the formula of Rs. 1000/- per day is applied, in most of the cases where the amount falls short then the amount of interest worked out at the rate of 2% per month. To illustrate, the amount of interest payable on the duty default of Rs. 1000/- at the rate of 2% per month would be Rs. 200/- and Rs. 2400/- per annum. In such a case, the monthly calculation at the rate of 2% being below Rs. 1000/- per day, on the basis of the said provision in Sub-rule (3) of Rule 8 of compulsorily applying the higher amount at Rs. WOO/- per day, the interest liability will work out to an astounding figures of Rs. 30,000/- per month and Rs. 3,60,000/- per annum. Surely such an absurd outcome could never have been intended by the Parliament while conferring power on the Central Government, under Section 11AB(1), of prescribing interest rate not below 10% and not exceeding 36% per annum. That part of Rule 8(3), being inconsistent with Section 11AB cannot therefore be sustained. To be more specific, the words "or Rs. 1000/- per day, whichever is higher" occurring in Sub-rule (3) of Rule 8 are ultra-vires the provisions of Section 11AB(1) of the said Act, and, therefore, cannot be enforced. This view is fortified by a recent decision of Hon'ble the Rajasthan High court in Lucid Calloids Ltd. v. Union of India rendered on 3.8.2005 in DB C.W. No. 1192/2005, in which while considering the validity of the phrase "or Rs. 1000/- per day or whichever is higher" in Rule 8(3) of the rules, has, in terms, struck down the said provision as being beyond the enabling provisions of the parent Act. It has been held that the prescription of limit of rate of interest at 10% per annum and 36% per annum in the parent provision of Section 11AB(1) made it clear that the base of charge of interest was rate per annum and not on any other basis. It was held that the alternative mode of levy of interest of Rs. 1000/- per day resulted in altering the nature of charge of interest from compensatory to penal and that providing alternative levy of interest at the rate of Rs. 1000/- per day if it is higher than the interest chargeable at the rate prescribed, is clearly by way of penalty and contrary to the enabling power conferred by Section 11AB of the Act on the rule making authority.
10. In the above view of the matter, since the phrase "or Rs. 1000/- per day whichever is higher" occurring in Sub-rule (3) of Rule 8 of the said rules is ultra-vires Section 11AB(1) and beyond the scope of the rule making power of the Central Government being violative of Section 11AB(1), cannot be implemented and no penalty at the rate of Rs. 1000/-per day could be imposed in the present case on the ground that interest rate of 2% per month was lower than the said amount.
11. Therefore, while confirming the impugned order on all other points it is directed that liability to pay interest should be worked out for the period in question which was covered by Rule 8(3), on the basis of the rate of 2% per month, and the impugned order holding that the assessee is liable to pay at the rate of Rs. 1000/- per day stands modified to that extent. The appeal is, accordingly, disposed of with the above modification and the case is remanded to the adjudicating authority to work out the interest for the period covered by the said Rule 8(3), in the light of this judgment. The appeal is accordingly partly allowed.
(Order dictated and pronounced in the open Court on 22.8.2006)