The Principal Commissioner vs. M/S Essar Steel INDIA LTD.

Facts

The appellant, the Principal Commissioner CGST & Central Excise, filed an appeal against an order passed by the Customs, Excise & Service Tax Appellate Tribunal (Tribunal) on February 2, 2018. The Tribunal's order upheld a decision by the Commissioner (Appeals) dated June 12, 2017. The dispute concerned the liability of the respondent-company, M/s Essar Steel India Ltd., to pay duty and penalty under Rule 8(3A) of the Central Excise Rules, 2002. The core issue revolved around the calculation of penalty for delayed payment of duty, specifically whether a part of a month constituted a full month for penalty calculation.

Held

The High Court held that the appeal filed by the Revenue was uncalled for and had no merit. The Court agreed with the Tribunal's interpretation of Rule 8(3A) of the Central Excise Rules, 2002. The Court found that a plain reading of Rule 8(3A) does not envisage imposing liability upon an assessee for an entire month when the duty was paid by a specific date within that month, and there was no default for the full month. The Court reasoned that rounding up the penalty to the entire month for a delay of even one day would constitute illegal collection not permissible under the statute. The Tribunal had correctly interfered with the order of the Commissioner (Appeals) by holding that penalty should be calculated for the actual period of delay or part thereof, not by rounding up to a full month. The ratio decidendi is that statutory penalties must be calculated strictly as per the provisions, and rounding up for the entire month when payment is made within that month is not permissible.

Key Issues

1. Whether, under Rule 8(3A) of the Central Excise Rules, 2002, an assessee is liable to pay penalty for the entire month even if the delayed duty payment is made on a specific date within that month, or only for the actual period of delay? The Revenue argued that the Tribunal erred in its interpretation of Rule 8(3A). The Revenue's contention, as understood from the judgment, was that if duty was paid beyond the due date, even if within the same month, the penalty was to be calculated for the entire month. The Revenue relied on its interpretation of the rule to justify this calculation. The Respondent-Company argued, and the Tribunal agreed, that Rule 8(3A) implies penalty is to be paid at the rate of one percent on the unpaid duty for each month or part thereof. This means that if payment is made by a particular date within the month, the penalty should not be rounded up to the entire month. The Tribunal relied on the Madras High Court decision in State of Tamil Nadu Vs. P.T.C. Sanghvi & Co. (1987) 66 STC 69 (Mad).