Levy of interest and penalty on late payment of central excise duty where goods are exempted is impermissible; exemption removes liability.

Issue concerns levy of interest and penalty on allegedly delayed payment of central excise duty where goods were exempted under specified notifications. The analysis holds that exemption removes any liability to pay duty, so interest and penalty cannot be imposed for non-payment of exempted duty. Rules cannot create substantive liability for interest or penalty absent a corresponding provision in the Act, and refund mechanisms under the notifications operate as exemptions rather than creating liability. Taxing statutes are to be construed strictly; any ambiguity benefits the taxpayer. Consequently, reliance on procedural rules to levy interest and penalty on exempted duty is impermissible.

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Issues Involved:
1. Levy of interest and penalty on late payment of duty.
2. Entitlement to exemption under Notification No. 20/2007-CE and subsequent notifications.
3. Applicability of Rule 8(3) and 8(3A) of the Central Excise Rules, 2002.

Summary:

Levy of Interest and Penalty on Late Payment of Duty:
The petitioner challenged the orders levying interest and penalty on the late payment of duty, which was exempted under Notification No. 20/2007-CE dated 25.04.2007. The court held that once goods are exempted from payment of duty, the question of payment of any duty does not arise, and consequently, no interest or penalty can be charged for non-payment of such duty. The provisions of the Central Excise Act, 1944, and the Central Excise Rules, 2002, do not mandate the payment of duty within a particular date for exempted goods. Therefore, no interest or penalty can be imposed for any purported delay in making payment of such duty.

Entitlement to Exemption under Notification No. 20/2007-CE:
The petitioner relied on the promises and assurances made in the Industrial Policy, 2007, and the Notifications issued in pursuance thereto, setting up its manufacturing unit in Assam. The court noted that the exemption contained in the Notification was to apply to new Industrial Units and those undertaking substantial expansion. The court held that the refund of duty paid is also an exemption from payment of duty. Since the Notifications provided for a refund of duty paid after verification by excise authorities, the same does not make the duty leviable or payable under the Act so as to attract interest and penalty for delay in payment.

Applicability of Rule 8(3) and 8(3A) of the Central Excise Rules, 2002:
The Assistant Commissioner referred to Rules 8(3) and 8(3A) of the Central Excise Rules, 2002, for upholding the levy of interest and penalty. The court held that these rules are procedural and cannot levy interest or penalty for delayed payment of duty on exempted goods unless the Act provides. Interest and penalty are substantive provisions of the taxing statute, and no interest can be charged without a substantive provision in the Act. The court emphasized that taxing statutes must be interpreted strictly, and any ambiguity should benefit the taxpayer.

Conclusion:
The court concluded that the Respondent Authorities committed a manifest error in law in levying penalty and interest relying on the provisions of Rules 8(3) and 8(3A) of the Central Excise Rules, 2002, in the absence of substantive provisions in the Act. The impugned orders levying interest and penalty on the late payment of duty, which was exempted, were set aside and quashed. The writ petitions were allowed, and the writ petitions were disposed of accordingly.

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