INTEREST ON DELAYED PAYMENTS – NO WAY TO COLLECT?

by

K.Vijay Kumar, M.A.,B.Ed., B.L.,

SUPERINTENDENT OF CENTRAL EXCISE

 

 

    I disagree with the views of my learned colleague, Mr.T.Pranavanand, that there is no provision under the Central Excise Act or the Rules to recover the interest payable under the Act or the Rules.

 

    Here it is worth recalling the observations of the Hon'ble Supreme Court on interest : "Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of delay in paying the tax on the due date. Essentially, it is compensatory". The Supreme Court made these observations while considering the interest provisions under Section 61(2) of the Customs Act, 1962 Section 11AA of the Central Excise Act has a similar provision which states"… Where a person chargeable with duty determined under sub-section (2) of Section 11A, fails to pay such duty within three months from the date of such determination, he shall pay in addition to the duty, interest…."

 

    Section.11A provides for determination of the duty due after a notice and consideration of representation (principles of natural justice) and it requires that thereupon such person shall pay the amount so determined. This of course does not specify as to –

 

    1.before what time he should pay the amount; and

    2.what happens if he does not pay the amount ?

 

    The first part is answered in Section 11AA, i.e, he can pay the money anytime (of course before some anxious Central Excise Officer who knows the answer to question two above, starts arm twisting methods to realize the amounts; more of it later), but has to pay interest if he pays after three months from the date of determination. (to avoid confusion the provisions of Section 11AB are not discussed here).

 

    So section 11AA has to be read along with Section 11A. Section 11AA has no independent existence; it is only a continuation of Section 11A and should not be read in isolation. In fact the Honourable Madras High Court, before the Eternit Everest {1975 (76) E.L.T. 76 (Tribunal)} judgement, in Gem Cables & Conductors Ltd v. collector [1994 (72) ELT 848 (Mad.)] had held that even section 11D had to be read in the context along with Section 11A. This was also considered by the Honorable Madras High Court in the Eternit Everest case, but still 11D was quashed because in the earlier case collection of amounts in excess of duty payable was not in dispute.

 

    Coming to question No.2 i.e, What happens if he does not pay the amount of interest? I would like to ask what happens if he does not pay the amount of duty determined ? Do we issue a show cause notice and then another adjudication order and then what happens if he does not pay that amount also; another show cause notice; on and on it goes to ridiculous levels. Thankfully it is not the case. Once the amount is determined under Section 11A (2), he is bound to pay the amount, and if not paid within three months, with interest. The Department can take recourse to Section 11 as suggested by Sri.C.Govindaswamy in the article on "Whether penalty can be recoverable under Excise Rule 230" [1998 (103) ELT A128] in the context of penalty. Section 11 covers duty and any other sums of any kind payable to the Central Government under representing duty and payable to the Government under Section 11D of the CEA ? This is where the Madras High Court judgment in Eternit Everest case (supra) comes into picture. The Honourable High Court held that until the Government came out with rules and procedures for collecting the amounts under 11D, it was not enforceable. But 11D as the Honourable court has said, is on a different footing. In fact a division bench of the Madras High Court in the Gem Cables case (supra) in which Hon'ble Justice Swamy was a member (who also sat in the Eternit Everest case), held that 11A was applicable to 11D. But the Court in the recent judgement came to a different conclusion because of different circumstances. In the earlier case it was not disputed by the party that excess amount was collected, whereas in the later case, the very fact of collection of any amount representing Excise duty was disputed. It was this dispute that led the court to come to the conclusion that in the event of dispute, there should be a well-defined procedure to assesss and quantify and the question of payment comes only after this.

 

    

    But in the case of interest there is no such problem. Interest is payable on the duty due as determined under Section 11A(2), after a due process and calculation of interest does not involve any great interpretations or decisions.

 

    Mr.Pranavanand says there is no punishment for non-payment of interest as this is not covered under Section 9 of Rule 173Q. But so is the position with respect to the duty itself as determined under Section 11A(2). The demand or determination under Section 11A(2) normally is for non-payment/ short payment etc., for which there are penal provision sand apart from demanding the duty, such penal actions are also initiated. So it might not have been though necessary to include provisions for punishment for not paying interest. Moreover, it is not practical. Assuming that a person has not paid interest, suppose there was a clues in the statute the whosoever does not pay interest (here there is another problem; strictly there is no time limit for paying interest, it is a liability that lasts till discharged. So the show cause notice can quantify interest only up to a period. Then what happens to the subsequent period?), shall be punishable with six months imprisonment and a penalty equal to the interest payable.

 

    In this situation, when the case comes up for hearing in the court, he can volunteer to pay and he would be acquitted. And if the department wants to impose a penalty, he can then volunteer to pay or what happens if he does not pay the penalty also ? Thus, it is not practically feasible or physically possible to have penal provisions for collecting interest and penalties. Action under Section.11 is good enough.

 

    It may thus be safely concluded that there is adequate provision in the law to collect interest under Section 11AB or Rule 57-I or Rule 57U. In fact Mr.Pranavanand has himself suggested that there is no need to amend Section.11, as it covers any other sums of any kind. The position regarding the amounts under Section 11D is different and this is similar to Rule 57CC.

 

    In any case it is worth noting that the Government has thought it fit to appeal to the Supreme Court against the Madras High Court Judgement, instead of framing rules for the procedure as required by the Madras High Court. And as the issue is yet to be decided by the Apex Court, is it not a little too early to comment on this ?

EXCISE LAW TIMES – 01.06. 1999 – A 76