Interest under Section 11Ab - date of payment reg.

PJ/Case Laws/2011-12/1309

Case: EXOTIC ASSOCIATES v/s COMMISSIONER OF CENTRAL EXCISE

Citation: 2010 (252) E.L.T. 49 (Guj.)

Issue:- Interest under Section 11AB - Whether interest is payable from 28.9.1996 or from 11.5.2001?

Brief Facts:- Assessee is engaged in manufacture of clearance of chemicals like Sodium Cynate, Cuprous Chloride, B.D.S.A., etc. falling under Chapter Head Nos. 28 & 29 of the Schedule to the Central Excise Tariff Act, 1985 and was registered under the Central Excise Act, 1944. On the basis of Special Intelligence information, the Unit of the assessee at Ahmedabad was visited and searched on 18-2-2000 by officers of Preventive Wing of Central Excise Commissionerate. After necessary inquiry and investigation, show cause notice was issued on 9-4-2002 calling upon assessee for recovering Central Excise duty on finished goods manufactured and cleared illicitly under the proviso of Section 11A(1) of the Act. Assessee was also called upon for recovery of central government duty involved on inputs. It was further proposed to impose penalty under Section 11AC of the Act and erstwhile Rule 173Q of the Central Excise Rules, 1944. And interest at the prescribed rate was also proposed to be demanded under provisions of Section 11AA of the Act.

The Adjudicating Authority confirmed the demand a duty on finished goods and also demanded excise duty involved on the inputs under Proviso to Section 11A (1) of the Act. Penalty was imposed under Section 11AC read with Rule 173Q of the erstwhile Central Excise Rules, 1944 and levied interest at the prescribed rate under Section 11AB of the Act.

Being aggrieved, assessee preferred an appeal before the Commissioner (Appeals), who upheld the demand, penalty and interest raised and/or charged by the Additional Commissioner.

In appeal before the Tribunal, the Tribunal observed that the assessee has not disputed the duty payment before the Tribunal and confined its challenge to the levy of penalty as well as interest.

As far as imposition of penalty is concerned, the Tribunal observed that the question of waiver of mandatory penalty does not arise, especially, in light of a specific provision by way of the Explanation to Section 11A(2B) of the Act. Merely because somebody has paid the evaded duty by resorting to clandestine removal, prior to issue of show-cause notice, waiver of penalty should not be justified as the same will make evasion risk-free and will treat the evader more kindly than the genuine tax payer, which is neither warranted nor envisaged. The Tribunal, however, has accepted the submission of assessee to the effect that since the entire demand relates to the period of 1997 to 2000, no interest is leviable in respect of the demand prior to 11-5-2001. Accordingly, the Tribunal has confirmed the levy of penalty and set aside the order with regard to charging of interest under Section 11AB of the Act.

The assessee has filed further appeal before the High court against imposition of penalty. Reveneu has also filed appeal against setting aside of interest liability.

Reasoning of Judgment:- The High Court held that the question of waiver of the mandatory penalty does not arise, especially, in light of a specific provision by way of the Explanation to Section 11A(2B) of the Act. Merely because somebody has paid the evaded duty by resorting to clandestine removal, prior to issue of the show-cause notice, waiver of penalty should not be justified as the same will make the evasion risk-free and will treat the evader more kindly than the genuine tax payer, which is neither warranted nor envisaged. The Tribunal, however, has accepted the submission of the assessee to the effect that since the entire demand relates to the period of 1997 to 2000, no interest is leviable in respect of the demand prior to 11-5-2001.

It was noted that accordingly, the Tribunal has confirmed the levy of penalty and set aside the order with regard to charging of interest under Section 11AB of the Act. Further the Tribunal has deleted the interest on the ground that the demand relates to the period of 1997 to 2000 and on that count, it was held that no interest is leviable in respect of demand prior to 11-5-2001. It is, however, contended before us that while taking the said view, the Tribunal has only considered the provisions of sub-section (2) of Section 11AB brought on the Statute Book by the Act 14 of 2001 with effect from 11-5-2001. Prior to the said provision, Section 11AB was inserted by Section 76 of Finance (No.2) Act of 1996 with effect from 28-9-1996.

The High Court relied on the non-applicable provisions, namely, amended Section 11AB. This amended Section 11AB would not apply to the cases where Section 11AB was inserted by Section 76 of Finance (No. 2) Act, 1996, effective from 28-9-2006 and demand related to a period subsequent thereto, i.e. between the period from 28-9-1996 and 11-5-2001. Sub-section (2) of Section 11AB specifically states that the provision of Sub-section (1) of Section 11AB shall not apply to cases where the duty had become payable on the date on which Finance Act, 2001 received the assent of the President. It was, therefore, open and permissible to levy interest under Section 11AB for the period subsequent to 28-9-1996 under the unamended provision of Section 11AB of the Act.

Decision:- Appeal disposed off.

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