Penalty for Delayed Excise Duty Payment to Be Calculated Only for Actual Days of Delay, Not Entire Month: CESTAT [Read Order]
CESTAT held that penalties for delayed excise duty payments must be calculated only for the actual number of days of delay, not for the entire month.
The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that penalties for delayed excise duty payments must be calculated only for the actual number of days of delay and not for the entire month.
Arcelor Mittal Nippon Steel India Limited, formerly known as Essar Steel India Limited, is engaged in the manufacture of iron ore concentrate and operates a beneficiation plant in Dantewada, Chhattisgarh.
During an audit, the department found that the company had paid central excise duty for the months of January to March 2017 after the prescribed due dates.
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The adjudicating authority, invoking Rule 8(3A) of the Central Excise Rules, 2002, imposed a penalty of Rs. 45,09,128, calculating it at 1% per month or part thereof on the defaulted amount. The Commissioner (Appeals) upheld this order. Aggrieved, the appellant approached the CESTAT.
The appellant’s counsel argued that the delay in payment was due to financial constraints but that the duty was subsequently paid along with applicable interest and penalty for the exact number of days of delay. They argued that the department had wrongly interpreted Rule 8(3A) by calculating the penalty for an entire month even when the default continued for only a few days.
The counsel further submitted that the company had undergone insolvency proceedings under the Insolvency and Bankruptcy Code, and the Supreme Court-approved resolution plan extinguished all liabilities arising before December 16, 2019.
The department’s counsel argued that the term “month” under Rule 8(3A) referred to the period between two consecutive due dates and that the penalty should apply for a full month even if the default lasted only for a part of the month.
The single-member bench comprising Dr. Rachna Gupta (Judicial Member) observed that Rule 8(3A) requires the penalty to be computed at 1% per month or part thereof, meaning it can be calculated even for part of a month on a proportionate basis.
The tribunal explained that the expression “part thereof” refers to the actual number of days of delay and cannot be stretched to cover an entire month. The tribunal pointed out that various High Courts, including the Madras and Gujarat High Courts, had already interpreted the rule to mean penalty should apply only for the exact period of default.
The tribunal also observed that since the appellant’s insolvency resolution plan had been approved by the Supreme Court, all tax liabilities prior to December 16, 2019, stood extinguished. It held that the department’s interpretation of Rule 8(3A) was incorrect and that the penalty must be confined to the actual number of days of delay. The impugned order was set aside.
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