High Court quashes interest demand under Central Excise Rules, citing lack of statutory backing

The High Court allowed the writ petition, quashing the communication/order demanding interest at 18% under Rule 96ZP(3) of the Central Excise Rules, 1944. The Court relied on a Supreme Court judgment that invalidated the interest and penalty provisions of the Central Excise Rules, emphasizing the absence of a substantive provision for interest levy in the main charging provision. The Court upheld the invalidation of interest and penalty provisions, concluding that the interest demand could not stand due to the lack of statutory backing.

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Issues:
Challenge against levy of interest under Rule 96ZP(3) of Central Excise Rules, 1944.

Analysis:
The High Court of Madras addressed a writ petition challenging a communication/order from the Superintendent of Central Excise imposing interest at 18% on excise duty along with a penalty against the petitioner. The petitioner contended that they had already paid the duty and penalty, disputing only the interest levy under Rule 96ZP(3). Citing the Supreme Court case of "Shree Bhagwati Steel Rolling Mills -Vs- Commissioner of Central Excise," the petitioner argued that the said rule was struck down by the Supreme Court, rendering the interest demand invalid.

The High Court referred to paragraphs 31 and 44 of the Supreme Court judgment, emphasizing that the interest and penalty provisions under Rules 96ZO, 96ZP, and 96ZQ of the Central Excise Rules were deemed invalid by the Supreme Court. The Court noted that since Section 3A did not provide for levying interest, the impugned interest demand could not stand. The Court acknowledged the mandatory nature of penalty under the provisions but upheld the invalidation of interest and penalty provisions.

After hearing both parties, the High Court concluded that the writ petition should be allowed based on the Supreme Court's judgment, which invalidated the rule allowing interest levy due to the absence of a substantive provision for such levy in the main charging provision under Section 3A of the Act. Consequently, the Court allowed the writ petition, quashing and setting aside the communication/order demanding interest at 18% under Rule 96ZP(3) of the Central Excise Rules, 1944, with no costs imposed.

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