Court dismisses writ petition, upholds interest demand under Central Excise Act.

M/s. Swan Mills Limited Versus The Union of India and The Commissioner of Central Excise, Mumbai-II and others

M/s. Swan Mills Limited Versus The Union of India and The Commissioner of Central Excise, Mumbai-II and others - 2015 (324) E.L.T. 361 (Bom.) Issues Involved:
1. Challenge to the communication/letter dated 18th October 2006.
2. Legality of the direction to pay interest under Section 11AA of the Central Excise Act, 1944.
3. Alleged violation of principles of natural justice.
4. Validity of the demand for interest without a show cause notice.
5. Timeliness and justification of the interest demand.

Detailed Analysis:

1. Challenge to the Communication/Letter Dated 18th October 2006:
The petitioner, M/s. Swan Mills Limited, challenged a letter dated 18th October 2006, which directed the payment of interest from 26th August 1995 to 7th October 2004, amounting to Rs. 1,69,55,030/-. The petitioner argued that this direction was illegal and contrary to the principles of natural justice as it was issued without a show cause notice or an opportunity to be heard.

2. Legality of the Direction to Pay Interest Under Section 11AA of the Central Excise Act, 1944:
The petitioners contended that the direction to pay interest was not automatic and that the statutory power to demand interest under Section 11AA came into force later. The respondents argued that the liability to pay interest is inherent in the obligation to pay the tax, and the demand for interest was justified given the prolonged litigation and delay caused by the petitioner.

3. Alleged Violation of Principles of Natural Justice:
The petitioners claimed that the impugned letter was issued without a show cause notice or a prior opportunity to be heard, violating the principles of natural justice. The respondents countered that the facts were undisputed, and the petitioner had engaged in prolonged litigation to delay the recovery of dues, thus not warranting a show cause notice.

4. Validity of the Demand for Interest Without a Show Cause Notice:
The petitioners argued that the demand for interest was invalid as it was issued without a show cause notice. The court noted that the demand for interest was based on undisputed facts and prolonged litigation, and there was no need for adjudication or a show cause notice in such circumstances. The court referred to various judgments, including the Supreme Court's decision in Aditya Mass Communications (P.) Ltd. v. Andhra Pradesh State Road Transport Corpn., which held that interest could be awarded on equitable grounds even in the absence of a specific legal provision.

5. Timeliness and Justification of the Interest Demand:
The petitioners argued that the demand for interest was time-barred and unjustified. The respondents contended that the demand was reasonable given the prolonged litigation and delay caused by the petitioner. The court held that the demand for interest was not time-barred, as the petitioner had engaged in prolonged litigation and delayed the payment of dues. The court referred to the Supreme Court's decision in South Eastern Coalfields Ltd. v. State of M.P., which held that interest is payable in equity even in the absence of a specific legal provision.

Conclusion:
The court dismissed the writ petition, upholding the demand for interest. The court emphasized that the prolonged litigation and delay caused by the petitioner justified the demand for interest, and there was no need for a show cause notice in such circumstances. The court also noted that the principles of natural justice were not violated, as the facts were undisputed and there was no need for adjudication. The court concluded that the demand for interest was justified and not time-barred, and the petitioner's arguments were without merit.