Compensatory interest cannot become a fixed daily levy: excessive excise rule wording struck down as ultra vires.

Rule 8(3) could validly prescribe interest for delayed payment of duty only within the compensatory framework authorised by Section 11AB, which links the charge to the amount and period of default. The words "rupees one thousand per day, whichever is higher" went beyond that power because they imposed a fixed daily levy unrelated to the duty in default and altered interest into a penal burden. Those words were held ultra vires and severed, while the remainder of the rule was sustained. The demand had to be recomputed only on the basis of lawful interest under the parent Act.

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Issues: Whether the expression "rupees one thousand per day, whichever is higher" in Rule 8(3) of the Central Excise Rules, 2002, insofar as it applies to delayed payment of duty, was within the enabling power under Section 11AB of the Central Excise Act, 1944 and valid.

Analysis: Section 11AB authorises levy of interest on delayed payment of duty at a rate fixed by the Central Government within the statutory minimum and maximum limits, and the scheme of the provision is compensatory, linked to the amount and period of default. The impugned rule, by introducing an alternative per-day amount that is not related to the amount of duty in default, created a variable and potentially penal burden unrelated to the statutory basis of interest. The Court held that delegated legislation cannot alter the nature of the charge from compensatory interest into a penalty, and the offending part was severable from the remainder of the rule.

Conclusion: The impugned words "rupees one thousand per day, whichever is higher" in Rule 8(3) were held ultra vires Section 11AB and inoperative, while the remainder of the rule was sustained.

Final Conclusion: The writ petition succeeded, the invalid portion of Rule 8(3) was struck down, and the demand was required to be recomputed only on the basis of lawful interest under the parent Act.

Ratio Decidendi: Delegated legislation prescribing interest on tax default must remain within the parent statute's limits and cannot impose a fixed per-day levy unrelated to the amount of default, where the statutory charge is compensatory rather than penal.

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