Levy of Interest on late payment of duty by providing it in subordinate regulations would be deemed as ultra vires if the same not provided by provisions of Act

Brief of the case:

• The Hon’ble Supreme Court in the case of Shree Bhagwati Steel Rolling Mills held that if the charging section of the Act do not provide for levy of interest on late payment of duty then the rules though made thereunder could not be enforced to levy and demand interest as such . And if the rules sought to levy interest without corresponding provision of charging interest in the provision of the Act, such rules are liable to be set aside as being ultra- vires the provisions of the Act.
• Therefore, in the present case since the charging section 3A of the Central Excise Act do not provide levy of interest on delayed payment of duty under compounded levy scheme , the rule 96ZP made under it providing such levy of interest is ultra-vires of the Act and was liable to be set aside.

Facts of the case:

• The assessee was engaged in the manufacture of rerolled non-alloyed steel products with the help of rolling mill taken on lease for the period from 1997 to 2000.The assessee opted to pay duty under the compounded levy scheme introduced from 01.09.1997.
• On expiry of lease period, assessee surrendered its registration certificate. On 19.08.2005, assessee was served notice demanding interest on delayed payment of duty for the period 1997-2000. The assessee challenged such demand on the ground that the rules framed under compounded levy scheme did not provide for any interest payable on delayed payment. However, assessee did not raise such ground upto the high court level and rather otherwise challenged the validity of such interest demand on the ground that the empowering section was omitted in year 2001 and for that reason no demand can be made under that section.
  

Contention of the Assessee:

• The learned counsel for the assessee contended the omission of Sec 3A in year 2001 had the effect of restraining revenue from taking action under the omitted section and the rules made thereunder. It is because the omitted provision to be treated as if never existed.
• It was also submitted that Rule providing for payment of interest would itself be ultra vires as Section 3A of the Act does not itself provide for the payment of interest. It was also argued that even such plea was not raised before any lower authorities it should be admitted because rules which are ultra vires ought to be ignored by the courts even if there is no substantive challenge to them.
  

Contention of the Revenue:

• The learned counsel for the revenue supported the judgment of this Court in the Fibre Board’s case and said that recent judgments delivered which have clarified the law should not to be interfered in the larger public interest.

• As regards the alternative plea of the assessee’s counsel challenging the jurisdiction to levy interest , it was argued that since this issue was never raised before the authorities below, this Court should not allow the appellant to raise it at this belated stage.
• It was also contended the levy of interest is automatic in nature and subordinate legislation in the nature of a rule which provides levy of interest on delayed payment could do the job well.
  

Held by Hon’ble Supreme Court:

• Supreme Court rejected the plea of assessee’s counsel that omission of section 3A would save assessee from any interest payable for delayed payment relating to period 1996 to 2000. Supreme court relied on its decision recent decision delivered in the case of M/s Fibre Boards (P) Ltd., Bangalore vs. Commissioner of Income Tax, Bangalore, [2015] 376 ITR 596 wherein the court held that if under an omitted provision anything duly done or suffered thereunder or any   legal proceeding in respect of any right or liability cannot be instituted, continued or enforced in respect of rights and liabilities acquired or incurred, then in the majority of cases it would cause great public mischief.
• Court also examined the alternative plea of the assessee that Sec 3A of the Act does not itself provide for the payment of interest. Court agreed to consider such plea even it was not raised before any lower authorities because the plea challenge the whole jurisdiction to levy interest under the Act.
• Court opined that the assessee’s counsel had a firm ground on his plea because the same issue has been already dealt by the constitution bench of this court in the case of VVS Sugars vs. Government of A.P., 1999 (4) SCC 192 wherein the court held that interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf. Such interest cannot be recovered basis application of rules made under the charging section.
• Applying the rationale of aforesaid decision to the facts of present case the court held that since Section 3A which provides for a separate scheme for availing facilities under a compound levy scheme does not itself provide for the levying of interest, Rules 96 ZO, 96 ZP and 96 ZQ cannot do so. And therefore, none of the other provisions of central excise act can come to the rescue of revenue.
• In result the appeal filed by the assessee was allowed.