Advocate R.P. Singh

The judicial precedent always plays vital role to clarify the law particularly when statute is not clear cut in regard to any issue. There is the same situation in the case of demand of interest on delayed payment of Central Excise Duty. The Central Excise Act, 1944 provides provision for recovery of interest under Section 11AA. But the Central Excise Act, 1944 does not prescribed time limit for recovery of interest. In the absence of time limit for recovery of interest the authority should take recourse within a reasonable period of time. Now, the question is that what would be the reasonable period of time for recovery of interest on delayed payment of Central Excise duty. The answer of this question is as under:

1. It is undisputed law that the demand of interest can be made only if there is the demand of duty against the party. Section 11A prescribed one year (proposed ‘two years’) time limit for demand of central excise duty and in exceptional circumstances of a case falling under the proviso to Section 11A (4) time limit is five years. The Hon’ble Apex Court, various high courts and Tribunals through its judicial pronouncements answered the above said question with observation that the period of limitation, unless otherwise stipulated by the statue, which applies to a claim for the principal amount should also apply to the claim for interest.

2. The Hon’ble Apex Court in the matter of Commissioner Vs TVS Whirlpool Ltd [2000 (119) ELT A 177 (SC) has held as under:

“It is only reasonable that the period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon. We find no merit in the appeals and they are dismissed with costs.”

3. The Hon’ble High Court of Delhi in the matter of Kwality Ice Cream Company Vs Union Of India [2012 (281) ELT 507 (Del.) followed the judgment of Hon’ble Apex Court in the TVS case and held as under:

“5. It is, therefore, clear that the principle adopted by the Supreme Court was that the period of limitation, unless otherwise stipulated by the statute, which applies to a claim for the principal amount should also apply to the claim for interest thereon. If that be the position, the period of limitation prescribed for demand of duty under Section 11A is normally one year and, in exceptional circumstance of a case falling under the proviso to Section 11A(1), the period of limitation is five years. But that would be applicable only in case of misstatement, fraud, concealment etc., which is not the case here. As such, in the present case, the period of limitation for the demand for duty would be one year. By the same logic, the period of limitation for demand of interest thereon would be one year. Inasmuch as the demand for interest has been made beyond a period of one year, the demand would be clearly hit by the principle of limitation as laid down by the Supreme Court”.

4. The Hon’ble High Court of Punjab & Haryana at Chandigarh in the matter of CCE Vs VAE VKN Industries Pvt Ltd., [2005 (322) ELT 269 (P & H) while relying with the judgment of Kwality Ice Cream has held as under:

“6. There is no dispute that assessee has paid the differential duty on supplementary invoices regularly and has shown the same in the ER-I returns, which were filed regularly before the department, therefore, issuance of show cause notice for interest on the delayed payment should also be within a period of one year as stipulated under Section 11A of the Act. Therefore, department has absolutely no jurisdiction to issue show cause notice after expiry of the period of limitation for interest on the delayed payment for the period from 2002-03 to 2005-06. Division Bench of Delhi High Court in the case of Kwality Ice Cream Company and Another v. Union of India and Others, W.P. (C) 14414-15/2006, decided on 18-1-2012 [2012 (281) E.L.T. 507 (Del.)] has also held that period of limitation, unless otherwise stipulated by the statute, which applies to a claim for the principal amount should also apply to the claim for interest thereon”.

5. The Hon’ble High Court of Punjab & Haryana at Chandigarh in the matter of Jai Bharat Maruti Ltd Vs CCE, Delhi-III [2014 (307) ELT 282 (P & H) while relying with the judgment of Kwality Ice Cream and VKN Industries has held as under:

“10………..the respondents do not allege much less assert that any other period of limitation applies or that short payment was made due to fraud, collusion, etc. and, therefore, while following the aforesaid judgments, we find no reason to accept arguments addressed by counsel for the revenue and have no hesitation in holding that period of one year would apply to the present case”

6. The Hon’ble CESTAT, Principal Bench, New Delhi in the matter of Pahwa Chemicals Pvt Ltd Vs CCE, Delhi-IV [2014 (311) ELT 205 (Tri. Delhi.)] while relying with the judgment of Kwality Ice Cream and VKN Industries has held as under:

“As such we find that the issue is squarely covered in favour of the appellants laying down that the period of limitation would apply to the demand of interest. Inasmuch as interest demand has been made in the year 2006 pertaining to the period of 1998-99, we find no justification for confirmation of interest amount. We accordingly set aside the impugned order and allowed the appellant with consequently relief”.

The above said judicial pronouncements made clear the cloud in regard to limitation for recovery of interest on delayed payment of Central Excise Duty. It has been made clear that the principle of Section 11A would be applicable in the case of interest also. The time limit for recovery of interest is one year (proposed ‘two years’) in the normal circumstances and five years in exceptional circumstances. And recovery of interest beyond the said period is time barred and not sustainable.

(Author is associated with Rajesh Kumar & Associates)

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