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M/s. Swan Mills Limited Versus The Union of India and The Commissioner of Central Excise, Mumbai-II and others

2015 (6) TMI 338 - BOMBAY HIGH COURT

Interest u/s 11AA - Held that:- The Revenue was engaged in prolonged litigation and had to move a Notice of Motion in contempt and thereafter as well the amounts were not paid. Then, notices were issued for encashment of bank guarantees and which are to be found from page 67 onwards. Despite such notices, the petitioner did not come forward to clear the dues. Thereafter, Detention Memo was issued detaining the immovable properties. That also did not have any effect and impact till 2004. On 6th O .....

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that order. The petitioner preferred to follow the cenvat method from 16th November, 2000, onwards. Thereafter, a Corrigendum was issued making it clear that the petitioner will have to make payment by debiting to the credit account only. That is how thereafter the petitioners made payment from the personal ledger account. - claim ought to be adjudicated and such communications were held to be untenable in law. We are not in any manner doubting this proposition but its application must depend on .....

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Once an advantage of an interim order has been taken and the Revenue is deprived of the amount of tax, then, the recovery of public dues is deferred and delayed. The advantage cannot continue after such interim orders are vacated or set aside. Thereafter, if the amounts are not paid on demand or if demanded but paid belatedly, the interest can be recovered and it is the duty of the Court to ensure that one deprived of legitimate and legal dues particularly public money is compensated. .....

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ity should be given or the demand can be made and anytime for any period, prior and subsequent. Ultimately, equitable principles should be applied if the facts and circumstances demand and not otherwise. - Decided against assessee. - WRIT PETITION NO. 3055 OF 2006 - Dated:- 13-3-2015 - S.C. DHARMADHIKARI & S.P. DESHMUKH, JJ. Mr. M.H. Patil with Ms. Aparna Hirandagi and Ms. Padmavati Patil for the Appellant Mr. A.S. Rao with Ms. Suchitra Kamble for the Respondent JUDGMENT S.C. Dharmadhikari, .....

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works out in terms of the calculation by the Central Excise authorities at ₹ 1,69,55,030/-. 2. This case has a chequered history. The petitioners were, at the relevant time, carrying on business as a composite textile mill, engaged, inter alia, in the manufacture of cotton yarn, man-made yarn, cotton fabrics and man-made fabrics as well as processing the same. The respondents to this writ petition had imposed, levied and assessed excise duty and additional duty under the erstwhile Central .....

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rim order was passed by which the Revenue / Central Excise Department was restrained from recovering the above duties from the petitioners on the condition that the petitioners furnish bank guarantees to the satisfaction of the Prothonotary & Senior Master of this Court. It is the case of the petitioners that pursuant to this order dated 26th July, 1979, copy of which is at Annexure B, they furnished the bank guarantees to the satisfaction of the Prothonotary & Senior Master of this Cour .....

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preme Court passed an interim order. The interim order contained a direction to the petitioners to deposit 50% of the disputed amount in cash, in instalments and furnish bank guarantees for the 50% balance sum which was to be kept alive from time to time. The petitioners do not dispute that by judgment and order dated 4th November, 1988, the Special Appeal in the Hon'ble Supreme Court together with a group of matters came to be disposed of. The petitioners' challenge to the legality and .....

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ering the excise duty if demanded. The interim orders were refused. The petitioners filed appeals before the Division Bench of this Court aggrieved by such refusals being Appeal No.507 of 1989 in Writ Petition No.236 of 1989 and Appeal Nos.227 of 1989 and 285 of 2989 in Writ Petition No.202 of 1989. This Court while dismissing the appeals by two orders dated 27th April, 1989, directed the Prothonotary & Senior Master to take steps to encash the bank guarantees within two weeks from the date .....

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uly, 1992 and 25th July, 1992, the Bank of India and Bank of Baroda respectively informed the Prothonotary & Senior Master of this Court that they are unable to pay any sums under these bank guarantees because they had expired. Once again another letter was addressed on 10th June, 1992 by the Prothonotary & Senior Master of this Court. Thereafter, the second respondent - the present petitioner moved a Contempt Notice of Motion No. 432 of 1994 in Misc. Petition No.1604 of 1979 alleging co .....

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the Prothonotary & Senior Master was directed to encash the bank guarantees in terms of the Division Bench order of this Court. Since the compliance was not made with this direction, the third respondent passed an order attaching the immovable properties of the petitioner. The order in that behalf is dated 13th October, 1999 (Annexure J). In response to this detention order, the petitioners approached the Addl. Commissioner of Central Excise (Task Force) to vacate this detention order subje .....

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at though the original bank guarantees were not returned to them but the duty amount was paid as above, they relied upon the oral assurance of the then Commissioner of Central Excise of not levying any interest on payment of the duty amount. It is in these circumstances they allege that the impugned letter directing payment of interest quantified at the above sum is illegal. It is contrary to the principles of natural justice as well. 7. Mr. Patil, the learned counsel appearing on behalf of the .....

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on this ground alone the writ petition deserves to succeed. 8. Mr. Patil alternatively submits that the direction to pay interest in this case cannot be said to be automatic or following alleged non payment of the sum due within a stipulated time. Even the interest as demanded is in pursuance of a statutory power. The provision conferring power of this nature came on the statute book later on. In such circumstances and for lack of power as well, this communication deserves to be quashed and set .....

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esponsible. After the proceedings concluded and the demand was raised, the money was paid on 7th October, 2004. There is no justification for demanding interest and by a communication issued on 18th October, 2006. That is also claiming interest for a past period. The demand is thus time barred. In these circumstances, the petitioner be granted the reliefs as prayed in terms of the prayer clauses. Mr. Patil has handed over a compilation containing copies of Rule 10, 10A of the Central Excise Rule .....

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. (4) Jai Bharat Maruti Ltd. vs. Commissioner of Central Excise, Delhi, 2014 (307) Excise Law Times, 282 (P & H). 10. On the other hand, Mr. Rao appearing on behalf of the respondents invited our attention to the affidavit-in-reply and submits that this is a fit case where the direction to pay interest should be sustained. He submits that the writ petitioner before this Court filed two writ petitions. The first writ petition is to question the legality and validity of the duties. In that the .....

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ef. The act of delaying the recovery is willful and deliberate. The dilatory tactics have been adopted to deprive the State of its legitimate dues. 11. Mr. Rao submits that there is absolutely no substance in the writ petition. Firstly, the liability to pay interest is part and parcel of the obligation and duty to pay the tax. The tax is held to be legal and valid. Implicit and inherent in the recovery of taxes by a legitimate mode is a direction to pay interest and for the deliberate and intent .....

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be claimed or the recovery is invalid and illegal. Similarly, the liability to pay being admitted, the delay being admitted, it is not open to the petitioner to urge that there is any violation of the principles of natural justice. There was no lis pending between the parties. The sum demanded as duty was already crystallised. That was not paid, but the Revenue was forced to resort to coercive measures for recovery thereof is admitted. The list of dates and events would itself disclose as to how .....

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n order was issued that a good five years from the issuance of the said order dated 13th October, 1999, payment was made on 7th October, 2004. Thus, the Revenue could have earned the moneys in 1989 itself. That was not possible because of the writ petitions being filed in this Court by the petitioner. The petitioner was fully aware of the outcome of the litigation as it lost the battle in the Hon'ble Supreme Court in the first round on legality and validity of the levy. Yet it commenced the .....

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which have been admitted by the petitioner. Thus, from 1995 till 2004, there were several steps taken and culminating in issuance of a detention order dated 13th October, 1999. Thereafter, the petitioner came forward to pay the sum but after nearly five years. Hence it is not open to the petitioner to raise any technical pleas. Each one of them is, therefore, frivolous. The writ petition deserves to be dismissed. 13. Mr. Rao relies upon the following two decisions one of which is of this Court : .....

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e in prolonged legal battle. Even after losing the battle in the Hon'ble the Supreme Court of India on legality and validity of the levy, the petitioner pursued its case. It filed two more writ petitions in this Court and in which as well, interim orders were sought. The interim orders were not to the satisfaction of the petitioner and, therefore, matters were taken to the Division Bench. The Division Bench found that there is no merit in the writ petition. The demand towards duty liability .....

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India. It is in these circumstances that the rival contentions were noted and considered by the Division Bench and it found that none of the grounds raised in the petition by the petitioner herein in the second round deserves acceptance. The Division Bench, therefore, rightly held that the bank guarantees ought to be encashed and with expedition. That order of the Division Bench dated 27th April, 1989, was also challenged in the Hon'ble Supreme Court of India but the petitioner failed. Thus, .....

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the bank guarantees were not kept alive as is clear from the communication of Bank of Baroda dated 24th July,1992 pages 48 to 50 and pages 51 to 52, then, we do not think that the petitioner can insist on compliance with any legal requirement much less of issuance of a show cause notice, personal hearing and a reasoned order thereafter demanding interest. There being no dispute on facts, there being no lis that we are of the view that the first contention of Mr. Patil must fail. 15. Equally unt .....

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of litigations, therefore, this fact itself should have been sufficient to refuse the request of the respondent made before the High Court for reduction of rate of interest. The quantum of interest a Court may allow in a given case is governed by the facts of the case and not by any precedent law unless of course, limited by a statute. If a Court comes to the conclusion on a given set of facts, a party has been wrongly denied the use of its own money, it is the duty of the Court to see that the .....

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ndia & Anr. [2000] 6 SCC 113. As stated above, the facts of this case do not justify the application of the principle, laid down by this Court in those judgments." 17. Further, the Hon'ble Supreme Court refers to its prior decision in the case of Sovintorg (India) Ltd. v. State Bank of India, AIR 1999 SC 2963 wherein the Supreme Court has laid down this principle and which is salutary in nature. The Court of law must possess a power to compensate those who have been deprived of mone .....

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delay on the part of the opposite party to render the services. Interest cannot be claimed under Section 34 of the Civil Procedure Code as its provisions have not been specifically made applicable to the proceedings under the Act. We, however, find that the general provision of the Section 34 being based upon justice, equity and good conscious (conscience) would authorise the Redressal Forums and Commissions to also grant interest appropriately under the circumstance of each case. Interest may a .....

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Act, 1839 (XXXII of 1839). Section 2 of this Act confers power on the Court to allow interest in cases specified therein, but the proviso to the said section makes it clear that interest shall be payable in all cases in which it is now payable by law. In other words, the operative provisions of S. 1 of the said Act do not mean that where interest was otherwise payable by law Court's power to award such interest is taken away. The power to award such interest on equitable grounds or under any .....

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rty taken away either by private treaty or by compulsory acquisition is generally regarded by judicial decisions as an equitable right; and so, the proviso to S.1 of the Interest Act saves the said right. We must accordingly hold that the High Court was in error in rejecting the claimants case for the payment of interest on compensation amount, and so we direct that the said amount should carry interest at 4% per annum from the date when respondent 2 took possession of the claimant's lands t .....

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a period of seven years. … … ..." 18. In regard to the Court's duty, the following judgment of the Hon'ble Supreme Court in South Eastern Coalfields Ltd. v. State of M.P. AIR 2003 SC 4482 contains pertinent observations. The same have far reaching consequences in law. We are bound by the following observations : "19. Interest is also payable in equity in certain circumstances. The rule in equity is that interest is payable even in the absence of any agreement or .....

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ay refer to the decision of this Court in Excutive Engineer, Dhenkanal Minor Irrigation Division, Orissa & Ors. v. Lrs & Ors. [2001] 2 SCC 721, wherein the controversy relating to the power of an arbitrator (under the Arbitration Act, 1940) to award interest of pre-reference period has been settled at rest by the Constitution Bench. The majority speaking through Doraiswamy Raju, J. has opined that the basic proposition of law that a person deprived of the use of money to which he is legi .....

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he arbitrator can award interest . ..…… 24. …... Unless otherwise ordered by the Court, the successful party at the end would be justified with all expediency in demanding compensation and being placed in the same situation in which it would have been if the interim order would not have been passed against it. The successful party can demand (a) the delivery of benefit earned by the opposite party under the interim order of the Court, or (b) to make restitution for what it h .....

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acted had it been correctly apprised of the facts and the law. The factor attracting applicability of restitution is not the act of the Court being wrongful or a mistake or error committed by the court; the test is whether on account of an act of the party persuading the Court to pass an order held at the end as not sustainable, has resulted in one party gaining an advantage which it would not have otherwise earned, or the other party has suffered an impoverishment which it would not have suffer .....

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Court pronounces its judicial verdict which does not match with and countenance its own interim verdict. Whenever called upon to adjudicate, the Court would act in conjunction with what is the real and substantial justice. The injury, if any, caused by the act of the court shall be undone and the gain which the party would have earned unless it was interdicted by the order of the court would be resorted to or conferred on the party by suitably commanding the party liable to do so. Any opinion t .....

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ts and circumstances. The Revenue was engaged in prolonged litigation and had to move a Notice of Motion in contempt and thereafter as well the amounts were not paid. Then, notices were issued for encashment of bank guarantees and which are to be found from page 67 onwards. Despite such notices, the petitioner did not come forward to clear the dues. Thereafter, Detention Memo was issued detaining the immovable properties. That also did not have any effect and impact till 2004. On 6th October, 20 .....

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y, 7th October, 2004. The petitioner disputed that by addressing a communication. We have on record a communication from the respondent dated 8th June, 2006, demanding interest as above. Prior thereto, on 7th October,2004, there is a communication from the petitioner and which records payment of the duty amount. However, the petitioner continued to raise a dispute and addressed a letter dated 27th June, 2006. It denied the liability to pay any interest. It relied upon some oral understanding wit .....

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inserted with effect from 17th November, 1986 by section 21 of the Customs, Central Excise and Salt and Central Boards of Revenue (Amendment) Act, 1978. He submits that by the later amendment there are various changes that have been brought about in section 11A and our attention has been invited to each of them. Further, our attention is invited to insertion of section 11AA. The argument is that in the absence of any provision of this nature at the relevant time the demand for interest is untena .....

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BLDG., LAL BAHADUR SHASTRI MARG, VIKHROLI (WEST), MUMBAI - 400 083 F.No.C.EX/R 05/Ch-II/Swan/2005/363 Vikhroli, the 18th October, 2006. MOST URGENT To, The Director, M/s. Swan Mills Ltd, Free Press House, 2nd Floor, 215, Nariman Point, Mumai 400 021 Sir, Sub: Interest on duty of ₹ 96,20,511/- paid reg. Kindly refer this office letter dated 8.6.2006 and your reply dated 27.06.2006 on subject matter. In this connection, it is to inform you that the views expressed in your above referred let .....

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:-Date of enactment of Section 11AA : - 26.-5.1995 Relevant date for calculating interest under Section 11AA :-26.08.1995 Date of payment : - 07.10.2004 Amount of Duty paid :-Rs.98,20,511/- Sr. No. Period Number of Months Days Rate of Interest (Notification No./ date) Interest amount 1 26.8.1995 to 11.5.2000 56 16 20% (N.No.21/95-CE-NT dt.29.5.1995 90,67,002 2 12.05.2000 to 12.05.2002 23 1 24% (N.No.39/2000-CE-NT dt. 12.5.2000 46,24,171 3 13.05.2002 to 11.09.2003 15 30 15% (N.No.19/2002 CE-NT dt .....

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n Copy to :- Assistant Commissioner of Central Excise, Chembur-II Division." Thus, interest is demanded as per the applicable rate from the date Section 11AA came into force, namely, from 26th August, 1995, to 7th October, 2004. Beyond that, we do not read anything in this letter. That there is a power to demand interest is not denied. However, it is urged that the said power could not have been exercised in the absence of any provision in the relevant and applicable law. That the Notificat .....

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y of interest on delayed payment of duty submitted that unless there is any such provision, the interest is not leviable. He has also relied upon judgments where recovery of interest without a notice to show cause was held to be unsustainable. 23. However, the reliance placed by Mr. Patil on these judgments is entirely misplaced. In the first decision of the Hon'ble Supreme Court in the case of Metal Forgings v. Union of India 2002 (146) ELT 241, the facts were that the manufacturers viz. ap .....

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ke polishing and trimming to make the product suitable for its ultimate use. This gave rise to a dispute between the assessee and the Revenue and which had an equally chequered history. The Tribunal considered the two questions, one on the point of limitation and the other was pertaining to classification under Tariff Item 68. When the matter was carried to the Supreme Court what was argued was that the demand could not have been within limitation as no show cause notice as required in law was e .....

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red in law that the Hon'ble Supreme Court made the observations in paragraph 17 of this judgment which are heavily relied upon by Shri Patil before us. We are of the view that this judgment has no bearing on the controversy before us. There the demand of duty was made without a show cause notice and particularly after insertion of Tariff Item 68 in the Tariff Schedule. That led to the Hon'ble Supreme Court holding in favour of the assessee. 24. In the second judgment in the case of Colle .....

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ancing the duty payable by the assessee, the Assessing Authority shall give a notice calling upon it to show cause why it should not be made liable for paying the same. That order was challenged in the Supreme Court and that is how the observations in paragraphs 2 and 4 have been made. They must be, therefore, seen in the peculiar facts and not by ignoring the same. In both these decisions, the interest as demanded in the present case was never an issue. Similarly, in the case of Union of India. .....

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reafter an order following the same. More so, when the extended period is sought to be invoked. Such is not the case before us. 25. In the case of a Division Bench judgment of this Court in the case of Nirlon Ltd. v. Union of India 2007 (209) ELT 12 the petitioner-company was paying excise duty while clearing the goods from time to time. However, there were few defaults in payment of such duty. The petitioner was required to make good these defaults by paying interest that too at the rate of 24% .....

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0, onwards. Thereafter, a Corrigendum was issued making it clear that the petitioner will have to make payment by debiting to the credit account only. That is how thereafter the petitioners made payment from the personal ledger account. That continued and much later a notice was issued to the petitioner calling upon it to pay interest to the tune of ₹ 31,98,398/- for having resorted to cenvat during the period 16th November, 2000 to 20th December, 2000 and terming that as incorrect. That d .....

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depend on facts and circumstances in each case. The claim for interest could arise in various situations. The demand may also arise if the admitted and adjudicated sum is not remitted and paid within the time stipulated by law or within a reasonable period. The party being deprived of its legitimate dues and without any cause can seek to compensate itself by raising a demand for interest and which demand could be based on the undisputed facts. Then there is nothing required to be adjudicated or .....

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nterest must be made within a reasonable period. What could be said to be a reasonable period must depend upon facts and circumstances of each case. We do not find that in this case the demand was hopelessly time-barred or said to be unreasonable. Yet again, we find that the decision of the High Court was reversed by the Supreme Court also on the ground that no notice was served. Thus there was no demand for interest in the assessment order and that was raised after nearly four years. Therefore, .....

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n allowed to be invoked and upheld based on these observations of the Hon'ble Supreme Court and which are also forming part of the judgment in the case of Citedal Fine Pharmaceuticals (supra). In paragraph 6 it has been held by the Hon'ble Supreme Court that no hard and fast rule can be laid down as to when a demand for interest can be said to be made within reasonable period. The application of this principle will apply on facts of each case. Hence all these decisions are clearly distin .....

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ction 11AA of the Central Excise Act, 1944. The issue was whether interest is payable in terms of section 11AA. Such is not the issue before us. There is no demand of any increased sum nor is there a revised demand and depending upon which the interest is claimed. Hence this decision is also of no assistance. 29. Mr. Rao appearing on behalf of the Revenue relied on the judgment of the Supreme Court in Calcutta Jute Mfg. Co. (supra). 30. We are of the view that the reliance on this judgment is ap .....

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