Bombay High Court
Blue Star Limited vs Union Of India on 15 October, 2009
Author: Ferdino I. Rebello
Bench: F.I. Rebello, D.G. Karnik
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mgn
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
APPELLATE SIDE CIVIL JURISDICTION
WRIT PETITION NO.7202 OF 2009
1.Blue Star Limited, a Company )
registered under the Companies Act, )
1956 and having its registered office at )
Katuri Building, Mohan T. Advani Chowk, )
Jamshedji Tata Road, Mumbai-400 020 )
2.Mr. K.P.T. Kutty of Mumbai, Indian )
Inhabitant, having his ofice at Blue Star )
Limited, Katuri Building, Mohan T. Advani )
Chowk, Jamshedji Tata Road, )
Mumbai-400 020 )..PETITIONERS
Versus
1.Union of India )
2.Assistant Commissioner of Central )
Excise, Wagle II Divn., Mumbai-III )
Commissionerate, B-91, New Central )
Excise Building, Wagle Industrial Estate, )
Thane-400 604. )
3.Commissioner of Central Excise, )
Mumbai III Commissionerate, 4th Floor, )
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Vardaan Trade Centre, MIDC, )
Thane West-400 604. )..RESPONDENTS
Shri R. Ravindran, for the Petitioners.
Mr. R.V. Desai, Senior Advocate with Mr. Rohit B. Pardeshi, for the Respondents.
CORAM : F.I. REBELLO &
D.G. KARNIK, JJ.
DATED : 15TH OCTOBER, 2009 ORAL JUDGEMENT (PER FERDINO I. REBELLO, J.) Rule. Heard forthwith.
2. In a case where an order is set aside and remanded to the Assessing Officer for deciding the matter de novo, what is the relevant date for payment of interest under Section 11AA of the Central Excise Act. That is the question for consideration. Section 11AA of the Central Excise Act reads as under:-
"11AA. Interest on delayed payment of duty.-- (1) Subject to the provisions contained in Section 11-AB, where a person chargeable with duty determined under sub-section (2) of Section 11-A, fails to pay such duty within three months from the date of determination, he shall pay, in addition to the duty, interest at such rate not below ten per cent and not exceeding thirty-six per cent, per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette on such duty from the date immediately after the expiry of the said period of three months till the date of payment of such duty:::: Downloaded on - 09/06/2013 15:13:26 ::: 3
Provided that where a person chargeable with duty determined under sub-
section (2) of section 11-A before the date on which the Finance Bill, 1995 receives the assent of the President, fails to pay such duty within three months, from such date, then, such person shall be liable to pay interest under this section from the date immediately after three months from such date, till the date of payment of such duty."
Explanation 1.-- 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.
Explanation 2.-- Where the duty determined to be payable is increased or further increased by the Commissioner (Appeals), Appellate Tribunal, National Tax Tribunal or, as the case may be, the Court, the date of such determination shall be,--
(a) for the amount of duty first determined to be payable, the date on which the duty is so determined;
(b) for the amount of increased duty, the date of order by which the increased amount of duty is first determined to be payable;
(c) for the amount of further increase of duty, the date of order on which the duty is so further increased.
(2) The provisions of sub-section (1) shall not apply to cases where the duty ::: Downloaded on - 09/06/2013 15:13:26 ::: 4 becomes payable on and after the date on which the Finance Bill, 2001 receives the assent of the President."
3. Facts necessary for deciding the controversy may now be set out. A show cause notice dated 6th February, 1992 came to be served on the petitioners as to why Central Excise Duty which was not paid/short paid during the period 1st February, 1987 to 9th August, 1991 should not be demanded and recovered from them under the proviso to sub-section (1) of Section 11AA of the Central Excise Act and Salt Act, 1944 read with Rule 9(2) of the Central Excise Rules, 1944 which hereinafter referred to as the Act and Rules respectively. Further why, the seven air conditioners, seized on 9th August, 1991 should not be confiscated under Rule 173Q of the Central Excise Rules 1944 and why duty should not be demanded from them at the rate as applicable to the slab of air conditioners having capacity over 7.5 tonnes and why Penalty should not be imposed under Rule 173Q and/or Rule 209A, 52A and 226.
There was a further show cause in the matter of confiscation with which we are really not concerned. The Respondents filed their reply and contended that Section 11AA(1) cannot be invoked in their case and also that the show cause notice was time barred. Allegations of contraventions under the Act were denied. After considering the material on record the A.O., was pleased to confirm the demand and also passed an order of confiscation and also imposed penalty, however, observed that they do not propose to confiscate the land and buildings and the plant and machinery as the order passed meets the ends of justice.
4. The petitioners aggrieved, preferred an Appeal before the Customs Excise ::: Downloaded on - 09/06/2013 15:13:26 ::: 5 Gold Control Appellate Tribunal, CEGAT to impugn the order dated 20th May, 1993.
By the order dated 14th July, 2000 the learned Tribunal was pleased to set aside the order and remanded the matter. We may gainfully reproduce the operative part of the order:-
"In the result, we set aside the impugned order and remand the case to the jurisdictional Commissioner of Central Excise for fresh decision according to the above guidelines. He shall pass fresh orders after extending a reasonable opportunity to the assessees of being heard in their defence."
5. On the order of remand, the A.O., was pleased to pass the impugned order on 22nd March, 2002. By the impugned order duty was confirmed in the sum of Rs.
35,15,930.80 paise and order of confiscation was passed with liberty to redeem on payment of fine of Rs.3.00 lakhs in lieu of confiscation. Penalty was imposed in the sum of Rs.8.00 lacs.\
6. The petitioners on 17th July, 2002 paid the duty as well as fine and penalty through two separate T.R. Challans.
7. The order of the A.O., came to be reviewed by the C.B.E.C., under Section 35-E(1) of the Act on 17th March, 2003. Pursuant to that order an appeal came to be filed, which, it is pointed out is still pending disposal before the CESAT.
8. In the meantime, by communication of 26th June, 2008 the Superintendent demanded interest on the duty confirmed. The 1st Petitioner by their communication ::: Downloaded on - 09/06/2013 15:13:26 ::: 6 of 18th July, 2008 replied, stating that under Section 11AA or under Section 11AB no interest was payable. By their communication of 20/21st August, 2008 the 2nd Respondent claimed interest under Section 11AA of the Act. The 1st petitioner on 15th September, 2008 pointed out that the order determining duty was passed on 22 nd March, 2002. Duty became payable only on or after that date and under Section 11AA (2) if duty becomes payable after 11th May, 2001 no demand can be raised under Section 11AA(1) of the Act. The petitioner No.1, therefore, denied their liability to pay the interest under Section 11AA and also pointed out that claim for interest at the rate of 20% was not correct. By communication of 5th February, 2009 the 2nd Respondent once again demanded interest stating that under Notification No. 30 of 2000 dated 12th May, 2000 interest is payable at 24%. By communication of 16th February, 2009 the 1st Petitioner reiterated their stand that no interest can be claimed under Section 11AA of the Act. On 27th July, 2009 the 2nd Respondent passed the impugned order directing that interest be paid within 7 days failing which threatened recovery proceedings under Section 11 including detention of goods and adopting coercive methods. The present petition is directed against the said order.
9. Reply has been filed on behalf of the respondent No.1 It is set out that demand of interest against reduced amount was payable from the date of first determination of the duty by the Adjudicating Commissioner and that the order of the Assistant Commissioner directing the petitioners to pay Rs.51,44,252/- for the period from 26th August, 1995 to 16th July, 2002 is correct, judicious and as per law. The interest paid from 26th August, 1995, it is set out, is in accordance with the statutory provisions of Section 11AA of the Act. Reliance is placed on Section 11AA of the ::: Downloaded on - 09/06/2013 15:13:26 ::: 7 Act. Reliance is also placed in the judgment in the case of Commissioner of Trade Tax vs. M/s.Kanhai Ram Thekedar, 2005 (185) E.L.T. 3 (S.C.) which according to the respondents has taken the view that interest liability accrues automatically. It is pointed out that interest is by way of compensation. In the case of a contract compensation is payable by one of the contracting party to the other for any loss or injury caused to the latter by the former by some conduct in breach of the terms of the contract. In revenue matters they should be paid in the form of interest by the assessee to the Government where any tax due is withheld for no fault of the Government. Reliance is placed in the judgment in the case of Central Provinces Manganese Ore Co. Ltd. vs. Commissioner of Income Tax, 1986 (3) SCC 461 to contend that interest is compensatory. It is then contended that reliance placed by the petitioners on Circular No.655/46/2002/CX dated 26th June, 2002 is misplaced as the same is not applicable on the facts and circumstances of the present case as the Circular deals with Section 11AB and not Section 11AA. Penalty under Section 11AB, it is set out, is penal in nature and not compensatory. For all the aforesaid reasons it is set out that the Petition ought to be dismissed.
10. On behalf of the petitioners learned Counsel submits that the demand under Section 11AA is not sustainable as duty became payable only after 11th May, 2001.
The order by the Commissioner dated 22nd March, 2002 is determination of duty payable under Section 11A(2) of the Central Excise Act. It is not duty determined to be payable which is either reduced or increased as contemplated under Explanation 1 and 2 of Section 11AA(1). It is then submitted that the demand raised for interest was made in June, 2008 after more than six years of the order determining the duty.
::: Downloaded on - 09/06/2013 15:13:26 ::: 8Assuming without admitting that interest is payable it is barred by limitation.
Reliance is also placed in the judgment in the case of M/s.Kanhai Ram Thekedar (supra).
11. On the other hand on behalf of the respondents the learned Counsel submits that in the instant case the relevant date for payment of duty would be the order dated 14th June, 1993 and considering that the Section came into force with effect from 26 th May, 1995 the interest on duty has rightly been demanded from 26th May, 1995.
12. With the above background the issue as framed earlier be answered. At the outset we may point out that the duty as assessed on remand, has been paid by the petitioners. The only question is of the payment of interest on the duty paid in terms of the contention of the Respondent that it relates back to 14th June, 1993 but as the Section had come into force on 26th July, 1995 duty was payable within three months from that date. Section 11AA as it stands now would show that sub-section (2) was introduced by Act 14 of 2001 with effect from 11th May, 2001 That sub-section says that the provisions of Sub-section (1) shall not apply to cases where duty becomes payable or on or after the date on which the Finance Bill 2001 receives the assent of the President. The Finance Bill 2001 received the assent of the President on 11th May, 2001. The first order demanding duty was passed on 14th June, 1993 which was set aside on 14th July, 2000 and fresh order came to be passed on 22nd March, 2002.
The question for consideration is what is the date when duty was assessed. Is it the first determination which was set aside or the date when the duty was assessed on remand, which has not been disputed by the petitioners.
::: Downloaded on - 09/06/2013 15:13:26 ::: 913. In Kanhai Ram Thekedar (supra) the Supreme Court has taken a view that interest does not become due on notice being served. The Court took the view that interest is automatic and no separate notice of demand is required to be served in that respect. In support of that view the Court relied on several of its earlier judgments. A Division Bench of the Allahabad High Court in the case of Swadeshi Polytex Ltd. vs. Assistant Collector of Central Excise, Division III, Ghaziabad and ors., 1986 (26) E.L.T. 701 (All.) has taken a view that mere giving of show cause notice does not amount to demand and a demand may come into existence after the show cause notice has been adjudicated upon. On 15th May, 2001 there was no demand as the order had been set aside on 14th July, 2000 and the order of adjudication came to be passed only on 22nd March, 2002. In Voltas Limited vs. Union of India, 1999 (112) E.L.T.34 (Del.), the issue before the Delhi High Court was in respect of an order of pre-deposit which was set aside and whether the amount of pre-deposit could be retained. The learned Division Bench of the Delhi High Court was of the view that once an order of adjudication is set aside the Tribunal could not have ordered the amount of pre-deposit to be retained awaiting the order of adjudication. These support the contention of the Petitioners that it is the final order of assessment which gives rise to the demand for interest if not payable within three months of the order of assessment.
14. A distinction is sought to be made between the demand by way of penalty and otherwise by the Respondents. Reliance was firstly placed in the judgment of the Tribunal in Prabhat Zarda Factory Ltd. vs. Commissioner of Central Excise, Delhi, 2002 (144) E.L.T. (Tri. Del.). In that case Section 11AA was not in the ::: Downloaded on - 09/06/2013 15:13:26 ::: 10 statute book when the show cause notice was issued on 29th November, 1994. It was, therefore, contended that no interest under Section 11AA can be demanded from the Appellant. There various other contentions were raised. Those contentions were rejected by holding that the duty demand was confirmed by the order in original passed by the Commissioner on 29th March, 1996 and Section 11AA came into force with effect from 26th May, 1995 and considering the provisions of Section 11AA the relevant date is the date on which the duty was determined. Against that order an Appeal was preferred before the Supreme Court. The Supreme Court upheld the order which had taken the view that the relevant date under Section 11AA of the Central Excise Act for calculating interest on delayed payment was the date on which the duty was determined.
15. Our attention was also invited to the judgment of Bench of the Tribunal at Chennai in the case of Eswaran & Sons Engineers Ltd. vs. Commissioner of C.Ex., Chennai, 2007 (208) E.L.T. 312 (Tri. Chennai). In that case pursuant to a show cause notice an order of adjudication came to be passed. In an Appeal against the order of First Appellate Authority the Tribunal set aside the demand for duty for part of the period of dispute and directed the original authority for re-quantification of the duty to be recovered from the assessee. In Appeal before the Supreme Court the order of the Original Authority was restored and pursuant to that the party paid the entire amount by instalments. The Department thereafter asked the party to pay interest under Section 11AA. The Tribunal noted that the order passed by the Tribunal setting aside the appellate Commissioner's order was set aside by the Supreme Court and thus upheld the original order. A finding was recorded that duty determined was paid beyond the period of 3 months from the dated (26th May, 1995) ::: Downloaded on - 09/06/2013 15:13:26 ::: 11 on which the Finance Act, 1995 received the President's assent. Our attention was also invited to the judgment in Aeon's Construction Products Ltd. vs. Commissioner of C.Ex., Chennai, 2007 (215) E.L.T. 464 (Tri. Chennai) to contend that the requantification of duty on remand is determination of duty and that would be the relevant date. The issue there was the demand for interest. The original order had been set aside and the matter was remanded for de novo determination. The first order was passed on 28th February, 2001 and the order of determination was made on 23rd September, 2005. Revenue demanded interest from 28th February, 2001. The assessee's contention was that interest would be payable after 23rd September, 2005 and as they had paid the amount the question of payment of interest did not arise. The contention of the assessee was upheld. Though these are orders of the Tribunal they were pointed out and we have referred to them to set out how the Tribunal has understood the issue.
16. On behalf of the petitioners learned Counsel also drew our attention to the judgment in Philips India Ltd. & Anr. vs. Assistant Commissioner, Commercial Taxes, Calcutta and Ors., (2004) 10 SCC 436. In that case an Appeal was preferred.
The stay was granted. Certain amounts were directed to be deposited which were deposited. Ultimately in the Appeal the order came to be passed directing recomputation on the basis set out in that judgment. In another Appeal the amount of tax was reduced. The respondent issued fresh demands. The question was whether the assessee could be treated as a defaulter and liable to pay interest. In that context bearing in mind the provisions thereof, the Supreme Court was pleased to hold that considering Section 31 of the Income Tax Act where in a case where ::: Downloaded on - 09/06/2013 15:13:26 ::: 12 assessment is reduced, enhanced or annulled or where fresh assessment is directed to be made, then the earlier order ceases to exist and the liability can only arise from the date of fresh demand. Therefore, once an order is set aside the earlier order ceases to exist and the liability can only arise from the date of fresh demand notice. It is, therefore, submitted that once the order is set aside the earlier order ceases to exist and the liability arises only on fresh determination. Reliance was placed on the judgment of the Supreme Court in Income Tax Officer Kolar & Anr. vs. Seghu Buchiah Setty, AIR 1964 S.C. 1473.
16. What is the effect, therefore, of the Original Order being set aside by the First Appellate Authority, by the Tribunal, by the High Court or by the Supreme Court.
Section 11AA provides for interest in case a person is charged with duty under sub-
section (2) of Section 11A and fails to pay such duty. In other words there must be duty which is ascertained which has to be payable. If the Original Order is set aside then there is no duty which is ascertained which is payable and consequently no interest would be payable. As noted earlier interest is compensatory. It is to recompensate a party. In the instant case the State for not recovering its monies (duties) on time. At the point of time interest becomes due the interest there must be an ascertained amount of duty which a party needs to pay. If there is no ascertained duty, there is no question of compensating the State by way of interst.
The fact that duty subsequently has been ascertained and becomes payable from the date when it was due, does not make a party liable for interest from that date. That situation is covered by the explanations to the Section.
::: Downloaded on - 09/06/2013 15:13:26 ::: 1317. Section 11AA has two explanations. By virtue of the first explanation, if duty payable is reduced, then the date of determination of reduction shall be date on which the amount of duty is first determined to be payable. In other words interest would be payable on the duty as reduced not from the date of such reduction of duty but from the date of the first order. That is because even if the duty is reduced there is still an order of determination but a reduced amount.. By explanation 2 where duty payable is increased or further increased two situations are set out. For the amount of duty first determined to be payable it is the date on which the duty was first determined and in so far as the increase of duty is concerned, the date on which the increased amount of duty is payable. So also in the case of further increase the date of the order on which the amount is further increased. The Explanation, therefore, gives the intent of the Legislature. The intent of the Legislature appears to be that in a case of increase of duty, the increased tax becomes payable not from the original date, but from the date on which it is increased and in the case of reduction it relates back to the first date.
17. What is the effect of setting aside the original order and remanding the matter for denovo consideration. Setting aside an order would mean that there is no order and a party is relegated to fresh adjudication. The stage of an adjudication cannot be said to be a determination. An adjudication will culminate in an order. That order would be the determination and/or ascertainment of duty. The relevant date for commencement of time the interest would be from the date the duty is determined if not paid within three months. Once there be an order, setting aside the entire order ::: Downloaded on - 09/06/2013 15:13:26 ::: 14 of determination there is no ascertained duty payable. In the instant case, therefore, though there was original order passed on 14th June, 1993 that was set aside on 14th July, 2000. The matter was before the A.O., for fresh determination on which an order came to be passed on 22nd March, 2002 and consequently the duty came to be ascertained on 22nd March,, 2002. Duty was paid on 17th July, 2002. Once the duty was ascertained on 22nd March, 2002 no interest could have been demanded under sub-section (1) of Section 11AA in view of sub-section (2) as inserted in Section 11AA on 11th May, 2001.
18. The other contentions raised on behalf of the petitioners are as to limitation.
In view of the passed on the first contention we do not propose to decide that issue finally.
19. In the light of that Rule made absolute in terms of prayer clauses (a) and (b).
In the circumstances of the case there shall be no order as to costs.
(D.G. KARNIK,J.) (FERDINO I. REBELLO,J.)
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