2019 (6) TMI 946 - HC - Central Excise

Court quashes CESTAT penalty, refunds deposited amounts with interest, upholds Section 35FF validity.

The High Court quashed the penalty imposed by CESTAT on the petitioners, reducing it to Rs. 5 crores each. The Court directed the refund of amounts ... Imposition of penalty under Rule 209A read with Rule 26 of the Central Excise Rules, 2002 - HELD THAT:- This Court is of the opinion that the petitioners are entitled to relief in view of the consistent view taken in this regard by the Courts. In Suvidhe Ltd. v. UOI, 1996 (82) E.L.T. 177 (Bom.), it was held that the amount paid as pre-deposit, for pursuing the appellate remedy or for any other reason mandated by law, cannot be treated as a tax as that is only a condition for pursuing the appellate remedy. The petitioners’ contention that they are entitled to interest from the date of the final order of the CESTAT, is justified and warranted. As to the second submission made with respect to the invalidity of Section 35FF on account of its prospective nature, the Court recollects that the provisions of law ought not to be read in a manner so as to invalidate them. The writ petition is allowed. Issues:1. Quashing of penalty imposed by CESTAT2. Granting of interest on refund amount3. Characterization of pre-deposit amounts as tax4. Validity of Section 35FF5. Calculation of interest payable to petitionersAnalysis:Issue 1: Quashing of penalty imposed by CESTATThe High Court quashed the penalty imposed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on the petitioners, which was initially set at Rs. 3 crores each by the Commissioner of Central Excise. The CESTAT had reduced the penalty amount for the petitioners, but the High Court further reduced it to Rs. 5 crores for each appellant. The Court directed the amounts deposited by the appellants during the appeals to be returned to them along with any accrued interest, and discharged the guarantees furnished by the appellants.Issue 2: Granting of interest on refund amountThe Deputy Commissioner had declined to grant interest on the refund of Rs. 5 crores to the petitioners, stating that the application for refund was made on 5-4-2016 and could be granted w.e.f. 13-5-2016. However, the High Court held that the petitioners were entitled to interest from the date of deposit, as the amounts paid as pre-deposit did not bear the character of 'tax' but were conditions for pursuing the appellate remedy.Issue 3: Characterization of pre-deposit amounts as taxThe Court relied on previous judgments to establish that amounts paid as pre-deposit for pursuing appellate remedies or other legal mandates are not to be treated as tax. The Court cited various cases, including Suvidhe Ltd. v. UOI, Union of India v. Suvidhe Ltd., and Nestle India Ltd. v. Assistant Commissioner of Central Excise to support this view.Issue 4: Validity of Section 35FFThe petitioners argued that the amended Section 35FF should not be treated as prospective, as it would deny interest on amounts that did not bear the character of tax. The Court, however, held that the provisions of law should not be interpreted in a way that invalidates them, and referred to previous judgments to support its stance.Issue 5: Calculation of interest payable to petitionersThe Court allowed the writ petition, quashed the impugned order, and directed the respondents to calculate the interest due and payable to the petitioners from the date when the appeals were allowed by the Court on 10-12-2015. The writ petition was allowed in these terms, and a review petition was dismissed as not pressed.This detailed analysis covers the various issues addressed in the judgment, providing a comprehensive understanding of the legal proceedings and decisions made by the High Court.