Karnataka High Court
Central Excise - Duty paid before Show cause Notice - interest and penalty liable : Karnataka High Court
BANGALORE, MAR 25, 2008 : RINL, Machino Montel , Padmashri V V Patil Sahakari Sakkar Karkhana and now Kennametal, there seems to be no waiver of interest and penalty even if duty is paid before Show cause Notice.
The respondent assessee availed credit of excise duty on the inputs. During the course of the audit of the accounts of the assessee it was observed that the assessee had availed Modvat credit of Rs. 1,18,940/- on "painting equipments and its parts" falling under Chapter 8421.10 of Central Excise Tariff Act, 1985, which were not falling within the ambit of definition of capital goods under the erstwhile Rule 57Q of the Excise Rules. On pointing out the same the respondent-assessee agreed to pay and reverse the Cenvat credit of Rs. 1,18,940/- availed by him. Accordingly he made payment of the said amount on 30.12.2000.
A show cause notice dated 26.12.2001 was issued to him demanding interest for the period from 12.6.96 to 30.12.00 at the rate of 25% on the said amount of credit. Penalty under Rule 173Q of the Excise Rules was also proposed in the said notice.
The Asst. Commissioner 'D' Division, Bangalore, confirmed the demand of interest of Rs. 1,12,944/- under erstwhile Rule 57AH of the Excise Rules read with Section 11AB of the Act.
On not being successful with the Commissioner (Appeals), the assessee approached the CESTAT, which allowed the appeal.
Revenue is in appeal before the High Court with the following substantial question of law:
"Whether the Tribunal was not justified in setting aside the order of Commissioner of Central Excise (Appeals-II) whereby the order of the Assessing Authority was confirmed, holding that the respondent assessee was not liable to pay interest under Rule 57AH of the Excise Rules, 1944 read with Section 11AB of the Act as the irregular credit that was availed by the assessee was paid before the issue of show cause notice against him.?
The Tribunal had observed,
"The issue pertains to demand of interest under Rule 57AH of the Central Excise Rules. Duty had been paid before the issue of show cause notice. Heard both the sides in the matter. The learned counsel submits that the duty has been deposited even before the issue of show cause notice and therefore penalty is not imposable in terms of the Tribunal judgment rendered in the case of Rashtriya Ispat Nigam Ltd. vs. CCE, Visakhapatnam which has been upheld by the Hon'ble Apex Court. Reliance also placed on Karnataka High Court judgment rendered in the case of CCE, Mangalore vs. Shree Krishna Pipe Industries and the Larger Bench of the Tribunal judgment rendered in the case of CCE, Delhi-III, Gurgaon vs. Machino Montel
In view of the admitted position that the duty has been paid even before the issue of show cause notice, the demand of interest is not sustainable. Respectfully following the ratio of the cited judgments, the appeal is allowed with consequential relief."
The High Court observed,
On a perusal of the above order it could be seen that the Tribunal passed the same without properly considering the ratio laid down in the case of Rashtriya Ispat Nigam Ltd. vs. CCE, Visakhapatnam which came to be confirmed by the Hon'ble Apex Court. It is not laid down therein that where the duty is paid by the assessee before the issuance of show cause notice he would not be liable to pay interest under Section 11AB of the Act. (in fact that was exactly what was laid down – the Tribunal in the RINL case observed, in view of the submissions made by the Counsel that the party has already deposited the duty to the Department, prior to issue of show cause notice, there is a lot of force in the arguments advanced on behalf of the party not to impose penalty. In these circumstances, there is no justification on the part of the Department to impose penalty under Section 11AC as well as under Rule 173Q of the Central Excise Rules, 1944. Consequentially, no interest also is payable. Thus this appeal is disposed of in the above terms.]
The High Court also referred to the case of Padmashri V V Patil Sahakari Sakkar Karkhana Ltd. reported in 2007-TIOL-419-HC-MUM-CX in which the Bombay High Court, after elaborately considering the ratio laid down in the case of Rashtriya Ispat Nigam Ltd. has observed that payment of duty before issuance of show cause notice does not exempt the assessee from his liability to pay interest under Section 11AB of the Central Excise Act. At para 13 of the said judgment it is observed as under.
"For all these reasons discussed, we are unable to agree with the proposition that interest under Section 11AB is also not chargeable in case the short duty or unpaid duty is deposited with the Government before issuance of show cause notice."
The High Court respectfully agreed with these views.
So the High Court finally held, that the Tribunal was not justified in reversing the concurrent findings of the Assessing Officer and the First Appellate Authority in levying interest on the amount of credit which was availed by the respondent-assessee wrongly though the same was paid by the assessee prior to issuance of show cause notice. With the result the substantial question of law formulated in this appeal is answered in favour of the appellant Revenue. Therefore, the present appeal is allowed, the impugned order of the Tribunal is set aside and the orders of the Assessing Authority and the First Appellate Authority are restored.
Interestingly, the same Karnataka High Court had this to say on the RINL decision, in the Shree Krishna Pipes case (2004-TIOL-09-HC-KAR-CX)
We find that Tribunal has in fact given a reason i.e., the disputed duty has been paid by the party event before the issue of show cause notice and this would show that there was no question of any fraud, misrepresentation or suppression of facts. In fact, the Tribunal in Rashtriya Ispat Nigam Ltd.'s case, held that where assessee deposits the duty even prior to the issue of a show cause notice, penalty should not be imposed and interest should not be levied. The Supreme Court has rejected the appeal filed against the said order. Therefore, we find that order of the Tribunal is a reasoned order though brief and no question of law arises in regard to the said order.
(See 2008-TIOL-169-HC-KAR-CX in 'Excise' + 2008-TIOL-169-HC-KAR-CX in 'Legal Corner')