High Court Decision: Interest capped at 24% per annum under Central Excise Rules

The Rajasthan High Court in Lucid Colloids Ltd. v. UOI held that interest under sub-rule 8(3) of the Central Excise Rules, 2002, could only be charged at 2% per month or 24% per annum. The appellants were not liable to pay the differential interest amount of Rs. 85,900. They were, however, liable to pay an additional interest amount of Rs. 6,637 due to a calculation error. A penalty of Rs. 1,000 was imposed instead of the initial Rs. 10,000, as the contravention was not with intent to evade duty and considering the mitigating factor of voluntary payment. The impugned order was set aside, except for the specified directions regarding interest and penalty.

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Issues Involved:
1. Correct legal position about the rate of interest to be paid under sub-rule 8(3) of the Central Excise Rules, 2002.
2. Liability of the appellants to pay the differential interest amount of Rs. 85,900.
3. Determination of the differential interest amount payable under Rule 8(3).
4. Liability of the appellants to any penalty imposed by the impugned order.
5. Whether the impugned order was "unlawful, biased, partisan" and violated principles of judicial discipline.

Detailed Analysis:

1. Correct Legal Position about the Rate of Interest:
The sub-rule 8(3) of the Central Excise Rules, 2002, was amended multiple times. Initially, it required interest at a rate specified by the Central Government under Section 11AB of the Act. From 1-4-2003 to 31-3-2004, the rule specified an interest rate of 2% per month or Rs. 1000 per day, whichever was higher. This was later reverted to the original form. The Rajasthan High Court in Lucid Colloids Ltd. v. UOI held that the phrase "or Rs. 1000 per day, whichever is higher" was ultra vires and invalid. Thus, interest could only be charged at 2% per month or 24% per annum.

2. Liability to Pay Differential Interest Amount of Rs. 85,900:
The interest-bearing period was from 1-4-2003 to 27-6-2003/8-7-2003. The correct rate of interest applicable was 2% per month or 24% per annum. The lower authority's application of Rs. 1000 per day was invalid as per the Rajasthan High Court's judgment. Therefore, the appellants were not liable to pay the differential interest amount of Rs. 85,900.

3. Determination of Differential Interest Amount Payable:
The appellants admitted to a short payment of interest amounting to Rs. 6,637 due to an error in calculating interest at 18% per annum instead of 24%. The argument for a 13% interest rate was not maintainable as it was not raised before the lower authority and was not applicable during the interest-bearing period. The correct interest rate was 24% per annum. Therefore, the appellants were liable to pay an additional interest amount of Rs. 6,637.

4. Liability to Penalty:
The lower authority imposed a penalty of Rs. 10,000 under Rule 25 read with Section 11AC. However, Section 11AC applies only where duty is determined under Section 11A(2), which was not the case here. The contravention of Rule 8(1) was not with intent to evade duty since the duty and interest were paid voluntarily before the SCN was issued. The penalty under Rule 25(a) was applicable as the goods were removed without payment of duty within the specified period. Considering the mitigating factor of voluntary payment, a penalty of Rs. 1,000 was deemed appropriate.

5. Whether the Impugned Order was "Unlawful, Biased, Partisan":
The lower authority failed to consider the appellants' submissions and the cited case laws. The impugned order did not provide clear findings or discuss the case law, violating principles of judicial discipline. The Assistant Commissioner's conclusion that the appellants were willing to pay the entire interest amount was factually incorrect and indicated a lack of proper consideration of the case. Therefore, the order was indeed "unlawful, biased, partisan" and caused avoidable harassment.

Conclusion:
The impugned order was set aside except for directing the appellants to deposit the differential interest amount of Rs. 6,637 and a penalty of Rs. 1,000. The appeal was disposed of in these terms.

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