TMI Blog2016 (10) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... slature cannot be attributed the intention to bring about such an incongruent result. This in our opinion would be a strong indication that by necessary implication section 11AA was meant to apply to all cases where the duty remained unpaid after introduction of section 11AA to the statute. In cases where whether the liability to pay the duty arose before or after the introduction of section 11AA but determination took place after the said date, the liability to pay interest would arise under the main body of the section. In cases where the liability as well as determination both took place before the introduction of section 11AA, such cases would be covered under the proviso and liability to pay interest would commence after the end of three months from the date of introduction of section 11AA to the Act. Significantly, in neither case, the interest liability would be for a period prior to introduction of section 11AA. This provision therefore has retroactive applicability. Effect of the words “Subject to the provisions contained in Section 11AB” inserted in section 11AA - Held that:- by providing that section 11AA would be subject to section 11AB, the legislature made it amply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the petitioner. To a limited extent, our interest would be in an order dated 26.6.2003 passed by the Customs Excise and Service Tax Appellate Tribunal ( CESTAT for short) in which while confirming the duty demand, the Tribunal recorded the contention of the counsel for the petitioner on the question of interest on unpaid duty as under : He also submitted that interest was not recoverable since in the 13 Show Cause Notices covered by this order, there was no proposition to recover the interest, as demanded is for the period July 91 to May 95 as per Board's Circular No.655/46/2002CX, dated 26.8.2002. The interest cannot be recovered and requested for disposal of the appeal in this case. 3. In this context, the Tribunal provided as under : As regards interest on the amount of duty confirmed, the matter is remitted back for requantification in terms of Board's order. The duties as determined are to be recovered along with interest, which should be requantified. 4. Pursuant to such directions of the Tribunal, Superintendent of Central Excise, at one stage, decided the question of interest against the petitioner. The petitioner challenged such order befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o time to contend that : a) The liability to pay interest is a substantive liability and can arise only prospectively. Section 11AA does not have retrospective effect and therefore, would cover only those cases where duty liability arose after 26.5.1995 i.e the date on which section 11AA was inserted in the said Act. In support of this contention, counsel relied on the decision of Supreme Court in case of J.K. Synthetics Limited v. Commercial Taxes Officer reported in (1994) 4 Supreme Court Cases 276, in which it was held that ordinarily, the charging section which fixes the liability is strictly construed but not the machinery provisions. It was held that the provisions by which the authority is empowered to levy interest, even if construed as forming part of the machinery provisions, is substantive law for the reason that in the absence of contract or usage interest that cannot be levied under law and cannot be recovered by way of damages for wrongful detention of the amount. It was further observed that interest was charged on the strength of a statutory provision, may be with the objective to compensate the Revenue for delay in payment of tax. But regardless of the reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered while determining the question of levying of penalty under Rule 25 of the Central Excise Rules. 7. On the other hand, learned counsel Ms. Trusha Patel for the Union of India submitted that once the petitioners have given up the challenge to the vires of the statutory provisions, her role would be limited. Learned counsel Ms. Avni Mehta for the department opposed the petition contending that statutory provisions are sufficiently clear. The petitioner was liable to pay interest in terms of section 11AA of the Act. The Commissioner has therefore, passed an order which calls for no interference. 8. In facts of the case, two issues therefore, arise. One whether the petitioner's liability was to pay interest under section 11AA or section 11AB of the Act and if it was under the former, such liability would relate to the date of clearances. 9. In this context, we may refer to the said two sections and multiple amendments made in such provisions. Under the Finance Act 1995, the parliament inserted section 11AA in the Act with effect from 26.5.1995. Relevant portion of such section reads as under : Section 11AA. Interest on delayed payment of duty.Where a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (2) of section 11AB were recast, relevant portion of which read as under: (1) Where any duty of excise has not been levied or paid or has been shortlevied or shortpaid or erroneously refunded, the person who is liable to pay the duty as determined under subsection (2), or has paid the duty under subsection( 2B), of Section 11A shall, in addition to the duty, be liable to pay interest at such rate not below eighteen per cent and not exceeding thirtysix per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette, from the first date of the month succeeding the month in which the duty ought to have been paid under this Act or from the date of such erroneous refund, as the case may be, but for the provisions contained in subsection (2), or subsection( 2B), of section 11A, till the date of payment of such duty: Provided that .... (2) The provisions of subsection (1) shall not apply to cases where the duty had become payable or ought to have been paid before the date on which the Finance Bill, 2001 receives the assent of the President. 14. Before focusing our attention to interpretation of section 11AA, we may com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first date of the month succeeding the month in which the duty ought to have been paid or from the date such erroneous refund was granted till the date of payment of such duty. Subsection( 2) of section 11AB was meant to remove doubts and provided that the proviso to subsection( 1) would not apply to cases where the duty become payable before the date when the Finance Bill, 1996, received the President's assent. 17. Under subsection( 1) of section 11AB thus the liability to pay interest would arise only if short payment or non payment of duty or erroneous refund was by reason of fraud, collusion, etc. and in such a case, liability to pay the interest would begin from the first date of the month succeeding the month in which the duty ought to have been paid or the refund was erroneously granted. 18. If we compare the provisions of section 11AA and section 11AB of the Act, there are three significant differences. First, that section 11AA covers all cases of non payment of duty and did not unlike section 11AB, confine its application to the duty not being paid by the reason of fraud, collusion,etc. Second, under section 11AA, the liability to pay interest would commence aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs from the date of such determination. It may however, be open to a person to contend that interest liability being a substantive liability, the statute would not cover the past cases before its introduction. However, the proviso to section 11AA would change the entire situation. Under such proviso, even in cases where the duty liability not only arose prior to the introduction of section 11AA but was also determined under subsection( 2) of section 11A and in which cases, the liability to pay interest would commence after three months of the introduction of section 11AA to the Act on the component of duty which remained unpaid after such date. In other words, the statute while creating a new provision for charging interest granted a moratorium of three months in cases where duty had remained unpaid on the date of introduction of the interest provision. If the duty is paid within such period, there would be no interest liability. If even after completion of three months from introduction of the provision, the duty remained unpaid, the liability to pay interest would commence from such date. In the background of such provision, if we accept the contention of Shri Trivedi for the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be possible, in absence of any further clarification, to apply both the provisions in cases where the non payment of duty was on account of fraud, collusion, etc. To make the matters beyond any debate, the legislature inserted words Subject to the provisions contained in Section 11AB in Section 11AA. 20. The expression subject to is a well known legislative device used in similarly but not always identical situations. In case of South India Corporation (P) Ltd. v. Secretary, Board of Revenue Trivandrum and another reported in AIR 1996 Supreme Court 207, the Constitution Bench of the Supreme Court observed that the expression subject to conveys the idea of a provision yielding place to another provision to which it is made subject. In case of The State of Bihar v. Sir Kameshwar Singh reported in AIR 1952 Supreme Court 252, yet another Constitution Bench of the Supreme Court, in context of the terms subject to observed as under : The only purpose of the words subject to occurring in Entry 36 is to indicate that legislation under Entry 36 should be subject to any law made by Parliament in exercise of its legislative power under Entry 42 of the Concurrent List. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of fraud, willful misstatement, etc. would be covered by section 11AB only and in a case which is covered by section 11AB, section 11AA would yield to the said provision. The contention therefore, that for applying section 11AA, all conditions provided in section 11AB must be satisfied, is devoid of any merits. The absurd results this contention would lead are plain to see. If for application of section 11AA, all the conditions of section 11AB are to be satisfied, section 11AA would have no independent existence and no purpose of enactment. Surely, the legislature cannot be seen to have framed two different provisions but both covering only one situation. 23. Before closing this issue, we may briefly refer to the later legislative changes though not directly pertaining to our case. With effect from 11.5.2001, under the newly inserted subsection( 2) of section 11AA, the applicability of erstwhile section 11AA was limited to cases where the duty became payable after the date on which the Finance Bill, 2001, received the assent of the President. Accordingly, for all such cases, section 11AA would have no further applicability. Corresponding changes were made in section 11AB whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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