K.C. and Sons Appliances P. Ltd. and Another vs Union of India and Others

M.R. Shah, J.—As common question of law and facts arise in both these writ petitions, they are being disposed of by this common judgment and order. That the controversy in both the petitions is with respect to the period between May, 2003 and August, 2004, so far as Special Civil Application No. 16284 of 2005 is concerned, and for the period between December, 2003 and February, 2004, so for as Special Civil Application No. 23751 of 2005 is concerned. It appears that during the aforesaid period, there was a delay caused in payment of excise duty, on which the respective petitioners were liable to pay interest on delayed payment of excise duty. That at the relevant time, the respective petitioners paid interest on delayed payment of duty at the rate of two per cent. per month. However, the Department was of the opinion that the respective petitioners were liable to pay interest on delayed payment of excise duty as per sub-rule (3) of rule 8, which was prevailing at the relevant time as per Notification No. 12/2003, dated March 1, 2003, i.e., 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 the due date till the date of actual payment of the outstanding amount, and therefore, demand notices came to be issued by the Department and the respective petitioners were called upon to make a payment of rupees one thousand per day on delayed payment of excise duty.

Feeling aggrieved and dissatisfied with the respective demand notices, the respective petitioners have preferred the special civil applications challenging the vires of sub-rule (3) of rule 8 of the Central Excise Rules, 2002 ("Rules" for short), which was amended as per Notification No. 12/2003 dated March 1, 2003, more particularly, the phrase, "rupees one thousand per day, or whichever is higher" as ultra vires section 11AB of the Central Excise Act, 1944 ("Act" for short).

Shri Devan Parikh, learned senior advocate with Shri S.N. Thakkar, learned advocate appearing on behalf of the petitioner in Special Civil Application No. 16284 of 2005 and Shri B.T. Rao, learned advocate appearing for the petitioner in Special Civil Application No. 23751 of 2005 have vehemently submitted that as such the question involved in the present petitions is squarely covered by the decision of the Rajasthan High Court in the case of Lucid Colloids Limited Vs. Union of India (UOI), It is submitted that in the aforesaid decision, the Rajasthan High Court has declared part of rule 8(3), which was prevailing at the relevant time as per Notification No. 12/2003 and which includes the expression, "at the rate of two per cent. per month or rupees one thousand per day; whichever is higher" as invalid and it is held that the interest chargeable on the delayed payment had to be only at the rate of two per cent. per month, or for that matter, twenty four per cent. per annum, which is the permissible limit in terms of section 11AB of the Act. It is, therefore, requested to allow the present special civil applications and to quash and set aside the impugned demand notices by holding that the respective petitioners are liable to pay interest on the delayed payment for the period in question only at the rate of two per cent. per month, or for that matter, twenty four per cent. per annum, which the respect petitioners had already paid.

Shri P.S. Champaneri, learned counsel appearing for the Department in Special Civil Application No. 23751 of 2005 and Shri R.J. Oza, learned counsel appearing for the Department in Special Civil Application No. 16284 of 2005 are not in a position to dispute, and as such, are not disputing that the issue involved in the present writ petitions is duly covered by the decision of the Rajasthan High Court in the case of Lucid Colloids Limited Vs. Union of India (UOI),

Heard learned advocates for the respective parties at length.

At the outset, it is required to be noted that as per the earlier Notification No. 4 of 2002 dated March 1, 2002 and as per sub-rule (3) of rule 8 of the Rules, an assessee who fails to pay the amount of duty by the due date, was liable to pay the outstanding amount along with interest at the rate specified by the Central Government by a notification issued u/s 11AB of the Act on the outstanding amount, for the period starting with the first day after due date, till the date of actual payment of the outstanding amount. However, subsequently, sub-rule (3) of rule 8 of the Central Excise Rules came to be amended by Notification No. 12 of 2003 dated March 1, 2003, which provided that 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 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 the due date, till the date of actual payment of the outstanding amount.

It appears that thereafter, sub-rule (3) of rule 8 of the Rules of 2002 came to be amended and the earlier sub-rule (3) of rule 8, as per Notification No. 4 of 2002 came to be restored with effect from April 1, 2005. As stated hereinabove, the dispute in the present special civil applications is with respect to the period between Notification No. 12 of 2003 dated March 1, 2003 and Notification No. 17 of 2005 dated March 31, 2005. It is not in dispute that sub-rule (3) of rule 8, which was prevailing at the relevant time, as per Notification No. 12 of 2003, came to be challenged before the Rajasthan High Court and considering the provisions of section 11AB of the Act at the relevant time, the Rajasthan High Court declared part of rule 8(3) as per Notification No. 12/2003 which includes the expression, "at the rate of two per cent. per month, or rupees one thousand per day, whichever is higher" to be invalid and to the extent holding the assessee liable to pay rupees one thousand per day in case of non-payment of the duty due and payable within a stipulated time and it is held that the interest chargeable on the delayed payment had to be only at the rate of two per cent. per month, or for that matter, twenty four per cent. per annum. On considering the decision of the Division Bench of the Rajasthan High Court in the case of Lucid Colloids Limited Vs. Union of India (UOI), , we are in complete agreement with the view taken by the Rajasthan High Court in holding so. In view of the above and for the reasons stated hereinabove, both these petitions succeed. Part of rule 8(3) of the Central Excise Rules, 2002, which was prevailing at the relevant time as per Notification No. 12/2003, dated March 1, 2003, which includes the expression, "at the rate of two per cent. per month or rupees one thousand per day, whichever is higher" is held to be invalid and consequently, it is held that the interest chargeable on the delayed payment had to be only at the rate of two per cent. per month, or for that matter twenty four per cent. per annum, as notified by the Government at the relevant time in terms of section 11AB of the Central Excise Act, and consequently, the impugned demand notices are also quashed and set aside. It is reported that the respective petitioners have already paid interest on the delayed payment of duty at the rate of two per cent. per month. Rule is made absolute to the aforesaid extent in each of the petitions. In the facts and circumstances, there shall be no order as to costs.