In a recent ruling, the Gauhati High Court decided that interest and penalty cannot be levied for late payment of excise duty on goods which are exempted from the payment of duty under the Notification No. 20/2007-CE dated April 25, 2007 issued under North-East Industrial and Investment Promotion Policy (NEIIPP).
The bench of Justice Kaushik Goswami observed that “…. If there is no liability of payment of any duty under the Act, the question of levy of interest and penalty for non-payment of the demand within the prescribed time does not arise.”
The petitioner Ambe Wire Pvt Ltd, in Writ Petition have jointly challenged the imposition of interest and penalties on the late payment of excise duty, which was originally exempted under Notification No. 20/2007-CE dated April 25, 2007. This notification provided a 100% excise duty exemption for products manufactured in the North Eastern Region.
Despite meeting the conditions for exemption, the Assistant Commissioner of GST & Central Excise Division-I levied interest and penalties for late duty payments in orders dated September 21, 2017, and March 17, 2017.
The petitioners contended that these levies were unjust as the duties in question were refundable under the NEIIPP. However, their representations were rejected by the Assistant Commissioner, who cited provisions in the Central Excise Rules, 2002, justifying the imposition of interest and penalties on delayed payments.
Dr. A. Saraf, Senior Counsel appeared for the petitioner and submitted that the petitioner is entitled to an exemption under Notification No. 20/2007, as amended by Notification No. 20/2008. He asserted that this exemption negates any obligation to pay the duty in question, thereby invalidating the imposition of interest and penalties for purported delays in payment.
He contended that the Assistant Commissioner committed a manifest error in law by imposing such interest and penalties in the orders dated March 17, 2021, and September 29, 2020.
Furthermore, the counsel highlighted that the respondents failed to recognize that the exemption provided by way of a duty refund effectively exempts the petitioner from the duty payment itself. Since the notifications stipulate a refund of the duty paid, subject to verification by the excise authority, this does not constitute a leviable or payable duty under the Act. Consequently, the imposition of interest and penalties for delayed payments is unwarranted.
On Contrary, the counsel of the respondents, argues that the petitioner’s refund claim for Central Excise Duty, filed under Notification No. 20/2007-CE as amended, was processed, and a refund of Rs. 12,94,386 was sanctioned on September 21, 2017.
However, due to late duty payment, interest and penalty amounting to Rs. 3,52,226 were deducted from this amount. Additionally, because the petitioner failed to pay CENVAT on goods cleared from August to December 2016, the remaining refund amount was appropriated to recover the unpaid duty.
Mr. Keyal contended that under Rules 8(3) and 8(3A) of the Central Excise Rules, 2002, the petitioner is liable for interest and penalties due to delayed duty payments. He emphasised that under Notification No. 20/2007-CE, the exemption benefit is contingent upon the payment of duty and the submission of duty payment statements, which are verified by the Central Excise Authority before issuing refunds. This process establishes that payment of duty is essential for obtaining a refund. In support of his arguments, Mr. Keyal cites the judgment in Amalgamated Plantations (P) Ltd. vs. Union of India, 2013 (2) GLR 732.
Hearing the both submissions, the court noted that the Notification, as amended, outlined the procedure for claiming exemption rather than mandating specific payment dates for duty. It required manufacturers to submit duty payment statements, which are then refunded after verification by the excise authority. Since the duty on goods from eligible industrial units is exempted, there is no obligation for timely duty payment.
In the present case, the petitioner has no liability of payment of any duty because of Notification No. 20/2007 read with Notification No. 20/2008. Therefore, the petitioner cannot be saddled with the liability of payment of interest and penalty for delayed payment of duty which was exempted, stated the bench.
The bench noted tha apex court’s observation in the case of Khemka & Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra emphasised that penalties are not merely sanctions but statutory liabilities, distinct from tax assessments.
In addition, it was noted the importance of strict interpretation of taxing provisions, citing various decisions of the Supreme Court. It emphasised that according to Sections 11AA and 11AC of the Central Excise Act, 1944, interest and penalty can only be imposed when duty is payable. Therefore, if duty is exempted by notification under Section 5A of the Act, interest and penalty cannot be levied.
The High Court also noted that “Rule 8(3) and 8(3A) of the Central Excise Rules, 2002 cannot be made applicable in support of the levy of the interest and penalty, for delayed payment of duty which is exempted in terms of notification issued under Section 5A of the Act. As discussed above, Rules are framed to carry out the purposes of the Act. If there is no substantive provision in the Act for levy of interest and penalty, the interest and penalty cannot be levied on the basis of any provisions of Rules.”
The bench stated 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 of the Act.
The Gauhati High court deemed the orders issued by the Assistant Commissioner of GST & CE, imposing interest and penalty on duty exempted by Notification No. 20/2007-CE, as arbitrary, erroneous, illegal, and lacking jurisdiction. Consequently, the orders in Writ petitions were nullified, including the rejection of representations dated 12.09.2017.
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