2018 (2) TMI 918 - AT - Central Excise

Interest Demand Overturned Due to Legal Infractions

The Tribunal set aside the demand of interest amounting to Rs. 4,99,48,695/- due to legal infractions, including the absence of a show cause notice, lack ... Demand of interest - scope of SCN - neither the SCN nor the Order-in-Original dated 7.1.1977 makes any whisper about liability to pay interest - whether the appellant is liable to pay the interest demand of ₹ 4,99,48,695/-? - Held that: - there is no proposal for duty demand in the SCN and there is no determination of duty in the Order-in-Original dated 7.1.1977 which are the genesis of this litigation. The SCN as well as the order-in-original dealt only with the issue of classification and the denial of benefit of exemption under N/N. 25/1970. Section 11AA provides for charging of interest where a person chargeable with duty determined under sub-section (2) of section 11A fails to pay such duty within three months from the date of such determination. In such a case, a person would be liable to pay interest at such rate not below 10% and not exceeding 30% per annum as may be fixed by the Central Government on such date from the date immediately after expiry of said three months till the date of payment of such duty. Thus, when the duty is determined under sub-section (2) of section 11A, the assessee is liable to pay interest at the specified rate on the date which remained unpaid after three months of determination till actual payment. Determination of duty means the duty ascertained after adjudication as per sub-section (2) of Section 11A. For the interest to be payable, there must be an ascertained amount of duty - In the present case, there has been no such determination of duty - In the absence of determination of duty under sub-section (2) of section 11A, the provisions of section 11AA is not attracted. The demand of interest therefore cannot sustain. There is no determination of duty under sub-section (2) of section 11A and therefore the ingredients of Section 11AA are not attracted. Further, there is no show cause notice issued for demand of interest. The demand of interest has been made by issuing a letter. Demand of interest not sustainable - appeal allowed - decided in favor of appellant. Issues Involved:1. Demand of Interest2. Applicability of Section 11AA and 11AB of Central Excise Act, 19443. Requirement of Show Cause Notice for Interest Demand4. Limitation Period for Demand of InterestDetailed Analysis:1. Demand of Interest:The appellants contested the demand of interest amounting to Rs. 4,99,48,695/-. The initial Order-in-Original dated 7.1.1977 did not determine any duty or interest liability, focusing solely on the classification and denial of exemption under Notification No. 25/70. The Hon’ble Supreme Court later settled the classification issue against the appellant. Subsequently, the department issued letters demanding duty but not interest. The Assistant Commissioner’s letter dated 22.1.2007 demanded interest under sections 11AA and 11AB, which was upheld by the Commissioner (Appeals).2. Applicability of Section 11AA and 11AB of Central Excise Act, 1944:The appellant argued that during the relevant period (5.3.1976 to 29.7.1977), there were no provisions for the levy of interest in the Central Excise Act, 1944. Section 11AA was introduced on 26.5.1995, and section 11AB on 28.9.1996. The Tribunal noted that for interest to be payable under section 11AA, there must be a determination of duty under sub-section (2) of section 11A. Since there was no such determination in the Order-in-Original dated 7.1.1977, the demand for interest was deemed unsustainable.3. Requirement of Show Cause Notice for Interest Demand:The appellant contended that no show cause notice was issued for the demand of interest, and reliance was placed on several judicial precedents, including the Hon’ble High Court of Bombay’s decision in Ballarpur Industries Ltd. The Tribunal observed that interest liability is not automatic and must be preceded by a show cause notice. The Tribunal referred to the Board Circular No. 1053/02/201-CX dated 10.3.2017, which clarified that a show cause notice is required for the demand of interest.4. Limitation Period for Demand of Interest:The appellant argued that the demand for interest was time-barred, having been made several years after the duty was paid. The Tribunal referred to the decision in TVS Whirlpool Ltd., where it was held that demands for interest should be made within a reasonable period. The Tribunal also noted that subsequent amendments to section 11A made the provisions of limitation applicable to the demand for interest.Conclusion:The Tribunal concluded that the demand for interest could not be sustained due to several legal infractions, including the absence of a show cause notice, the lack of determination of duty under section 11A(2), and the significant delay in raising the interest demand. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.