WP/1257/2005 of Cairn Energy India Private Limited, Vs Central Board of Excise and Customs, on 31 December 2012

ORDER:

(Per Hon’ble Sri Justice M.S.Ramachandra Rao)

In this writ petition, the question to be decided is“whether in the absence of a provision for levy of interestfor delayed payment of cess under the Oil Industry(Development) Act, 1974, the Revenue can apply theprovisions of Section 11-AB of the Central Excise and SaltAct, 1944 and demand interest from the petitioner ? ”.

2. The petitioner is one of the four JointVenture partners who together executed a ProductionSharing Contract with the Government of India on28.10.1994. The Joint Venture referred to as “Ravva JV”,was authorized under the said contract to carry outpetroleum exploration and production in an off shore oilfield off Andhra Pradesh Coast called “the Ravva Field”. While, the Oil and Natural Gas Commission (“ONGC”)holds 40% interest, Petrocon India Limited holds 25%interest, Ravva Oil (Singapore) Pte Limited holds 12.5%and the petitioner herein holds 22.5% interest in theRavva JV. The petitioner acts as an operator on behalf ofRavva JV to run its operations. It obtained a CentralExcise Registration in its name, it being the seller’srepresentative.

3. Ravva JV produces crude oil from the RavvaField and sells it on F.O.B. basis exclusively to theHindustan Petroleum Corporation Limited (“HPCL”) at Visakhapatnam and Bongaigaon Refineries andPetrochemicals Limited (“BRPL”) at Bongaigaon, Assam. The said two refineries were nominated by theGovernment of India as per the above contract. The crudeoil, after its extraction, is stored for a while in the adjoiningon shore facilities and after separation of water andsediments is taken back to a sea point through pipe linefrom where it is shipped out periodically, to the tworefineries through the marine tankers deployed by them.

4. The crude oil produced from Ravva field issubject to “cess” under section 15 of the Oil Industry(Development) Act, 1974 (for short “OID” Act). The cessis levied and collected on items specified in the schedulei.e. crude oil and natural gas, which is produced in India(including the continental shelf thereof) and (a) removed toa refinery or factory; or (b) transferred by the person bywhom such item is produced to another person. Since theOID Act did not provide for an independent mechanism forcollection of cess, clause (4) of Section 15 states that theprovisions of the Central Excise and Salt Act, 1944 andthe rules made thereunder, including those relating torefunds and exemptions from duties shall, as far as maybe, apply in relation to the levy and collection of duties ofexcise leviable under this section and for this purpose, theprovisions of that Act

(i.e the Central Excise and Salt Act, 1944) shall haveeffect as if that Act provided for the levy of duties of exciseon all items specified in the schedule.

5. The Government of India, Ministry ofFinance (Department of Revenue), New Delhi had issued a Circular No.18/88 dated 20.5.1988prescribing the procedure and payment of cess on crudeoil. Under this circular, the oil producing companies shalldebit the amount of cess on receipt of information of theactual quantity of net crude oil received by therefineries/factories and within 20 days after the close ofeach month, the oil producing companies shall filemonthly returns in this regard. On receipt of the monthlyreturns and copy of Personal Ledger Account (PLA)register from the oil producing company, the officerconcerned shall finalise the assessment of cess on thecrude oil received by the refinery/factory after scrutiny ofthe relevant records. If the amount due has not alreadybeen paid, the officer concerned shall cause a notice tobe served upon the oil producing company requiring it tomake payment of the amount assessed within ten days ofservice of the notice. The first respondent, in its tradenotice no.13/2001 dated 14.3.2001 reiterated the saidGOI notification, however, without referring to the said GOIcircular.

6. The petitioner was paying cess provisionally every month on or before the 20[th] of the month in respectof the crude oil supplies made to the refineries during thepreceding month. Payments were being made on thebasis of bill of lading quantities pending the ascertainmentof the final quantities from the refineries. The petitionercontends that despite requests by it, the actual quantitiesreceived by the refineries were not given to it andtherefore, its payments were higher than the quantitieswhich the refineries would have actually received onaccount of evaporation and loss in transit of the Crude oil.

7. Differences arose between the petitionerand the Central Excise Department in respect of thequantities of the crude oil on which cess was payable.Against certain orders passed by the officers of the saiddepartment unilaterally assessing the quantities of certainshipments in the years 2002 and 2003, the petitioner filedappeals before the Commissioner (Appeals), CentralExcise at Visakhapatnam and while they were pending,the 2[nd] respondent issued a letter dated 12.12.2003directing the petitioner to follow the procedure prescribedin the trade notice no.13/2001 dated 14.3.2001 referred toabove.

8. In view of this, the petitioner convinced both the refineries on the need to furnish the receivedquantities in a time bound manner. While HPCL agreed tofurnish such figures on the basis of the quantities receivedat their refinery, BRPL expressed that it is impossible forthem to give shipment wise received quantities at theirrefinery gate. They pleaded that from Haldia Port, theyhave to transport the crude oil through a pipe line to adistance of 1100 kms and that since certain quantitiesalways remain in the pipeline, it is not possible for them toidentify the exact quantity received against any particularshipment and consequently the month. It offered to furnishthe quantity received from the petitioner at Haldia Port andaccordingly it started furnishing details of the quantitiesreceived from the petitioner at Haldia Port from January2004. Thus, from January 2004, the petitioner paid cesson the quantities certified by the refineries as received onor before 20[th] of the following month.

9. The petitioner contends that for the periodprior to January 2004, the petitioner had furnished thefigures relating to the quantities received from therefineries to the department on 15.7.2004 to finally assessthe actual cess on the quantities received by therefineries, but the 4[th] respondent did not assess the cesstill the date of filing of the writ petition and that on suchassessment, the petitioner would be entitled to a refund of Rs.1.25 crores.

Conclusion

10. While so, the 4[th] respondent issued a letter inOC No.128/2004 dated 5.3.2004 relying on Rule 8 of theCentral Excise Rules and demanded the petitioner to payinterest of Rs.23,82,392/- for certain months between May2001 and March 2003 i.e. the delayed period. He alsoissued another letter in OC No.130/2004 dated 5.3.2004stating that the due date for payment of cess is the 5[th] ofthe following month and that the petitioner would be liableto pay interest @ 2% per month for delayed payment after5[th] and that for the period April 2003 to September 2003,the petitioner has to pay Rs.95,29,989/-.

11. The petitioner sent replies to both the lettersdenying its liability to pay interest contending that the duedate for payment cannot be 5[th] of the following month asapplicable to routine excisable goods whose quality andquantity is known ex-factory unlike crude oil and that thefinal received quantity figures are not immediately knownto the petitioner in respect of the crude oil. No responsewas given by the 4[th] respondent to the petitioner’s reply.

12. A circular C.No.V/30/253/2003-tech/II dated16.4.2004 was sent by the 2[nd] respondent to thepetitioner reiterating that 5[th] of the following month is the due date and while making payment in the PersonalLedger Account by the 5[th], the petitioner on receipt of thequantity data from the refineries shall carry outreconciliation. On such reconciliation, if any excessamount is payable, the same shall be paid within a monththereof with interest on the delayed payment. If anyexcess payment is made, the petitioner is entitled toadjust the same in the next month against the cesspayable. The petitioner expressed its disappointment by aletter dated 12.7.2004 to the 2[nd] respondent.

13. Thereafter, the petitioner received anotherdemand for the period October 2003 to February 2004vide letter OC No.338 dated 1.6.2004 for a sum ofRs.96,18,789/- directing the petitioner to show anymaterial evidence and legal provision in its knowledgeagainst the said demand.

14. The petitioner replied vide letter dated18.6.2004 questioning the jurisdiction of the department tolevy interest on the alleged delayed payment and alsodisputing taking 5[th] of the following month as the duedate.

15. The petitioner also sought intervention of thefirst respondent which is the Apex Body for Central Excisematters by its representation dated 4.10.2004.

16. While so, the 3[rd] respondent issued anothernotice dated 22-11-2004 to pay a sum of Rs.96,18,789/-as demanded in O.C.No.338 dt.01-06-2004 within tendays from the date of receipt of the said notice.

17. The petitioner by reply dt.02-12-2004disputed its liability to pay any amount as interest andraised the same contentions as it had raised before the4[th] respondent and enclosed a copy of its response sentto the 4[th] respondent to the 3[rd] respondent.

The 3[rd] respondent by letter

18. C.No.V/30/8/2004-STAT dt.28-12-2004 rejected thepetitioner’s contentions and reiterated the earlier demandsmade towards interest for Rs.1,91,48,778/-. Later anothernotice C.No.V/30/8/2004-STAT dt.29-12-2004 was issuedby the 3[rd] respondent calling upon the petitioner to payRs.23,82,392/-.

19. Petitioner sent replies dt.31-12-2004 and 04-01-2005 to the 3[rd] respondent reiterating its objections tothe demand of interest raised by the respondents.

20. As no specific reply was received by thepetitioner and the petitioner suspected that coercive stepsfor recovery of the amounts demanded under the abovethree demands would be initiated against it, it filed the present writ petition.

21. The following are the contentions raised bythe petitioner:

(a) The provisions of the OID Act do not postulateany due date for payment of cess; that cess is payable onthe quantities received at the refineries unlike in the caseof routine excisable goods for payment of Central Exciseduty under the provisions of the Central Excise Act, 1944;that clause (4) of Section 15 of the OID Act applies theprovisions of the Central Excise Act and the Rules madethereunder in relation to the levy and collection of dutiesunder the OID Act “as far as may be”; that theGovernment of India was conscious of the fact that cess ispayable on the quantity of crude oil received and thereforeit issued the Circular No.18/88 dt.20-05-1988 prescribinga specific method of levying and collecting cess which isat variance with the methods prescribed under the CentralExcise Rules for levy and recovery of Central ExciseDuties on goods covered by the Central Excise Act; thatRule 8 of the Central Excise Rules (substituted with effectfrom 01-04-2003) states that the duty of goods removedfrom the factory or the ware house during a month shall bepaid by the 5[th] of the following month; that the cess paidunder the OID Act on refinery receipt quantities of crudeoil is not paid under the Central Excise Act on removal of goods from the factory or ware house; that the cess underthe OID Act is not within the ambit of the term “duty”defined under Section 3 of the Central Excise Act andtherefore the due date for duty payable under the CentralExcise Act is not applicable for payment of cess on crudeoil under the OID Act; (b) The trade notice No.13/2001 dt.14-03-2001issued by the 2[nd] respondent reproduces the Governmentof India notification No.18/88 dt.20-05-1988 ipsissimaverba and prescribes a date (20[th] of the following month)for filing returns by the oil producing company andpayment of cess on crude oil shall be made immediatelyon receipt of the information relating to the actual quantityof net crude oil received by the refinery or factorydetermined after test results; that the oil company shalldebit the amount of cess in the PLA and therefore the 2[nd]respondent has no jurisdiction or power vested in him toamend the Government of India notification dt.20-05-1988by issuing Circular No.C.No.V/30/253/2003-Tech-II dt.16-04-2004.

(c) The Government of India has not fixed anyspecific deadline as a due date for payment of cess andinstead, it had allowed time till 20[th] of the following monthto file the return along with the payment particulars and therefore the oil producing companies are allowed time topay cess after they have received details of receiptquantities from refineries before 20[th] of the followingmonth and that in view of the practical difficulties beingfaced by the petitioner in receiving details of the receiptquantities from the refineries, the respondents are boundto fix a reasonable date as due date after duedeliberations with the oil refineries.

(d) Assuming that the due date for payment of cessis the 5[th] of the following month, no interest is payable ifpayment of cess is made during that month under Section11-AB of the Central Excise Act; that it is only if duty is notpaid during that month that liability to pay interest arisesfrom the first date of the month succeeding the month inwhich the duty ought to have been paid; that Rule 8 (3) ofthe Rules framed under the Central Excise Act is in directconflict with Section 11AB of the Central Excise Act and isultra vires.

(e) The provisions of the OID Act do not provide forpayment of interest. Though under Section 15 (4) of theOID Act, the provisions of the Central Excise Act and theRules made thereunder as far as may be are madeapplicable, they cannot be applied mechanically withoutreference to the particular situation existing with respect to the crude oil qua payment of cess; that if the 5[th] of thefollowing month is not taken as the due date, there is nodelay in making payment and therefore the petitioner isnot liable to pay interest.

(f) Even otherwise, the petitioner contended that the3[rd] and 4[th] respondents have no authority to levy interestsince OID Act, which is the charging and substantivestatute does not prescribe payment of interest; (g) The 3[rd] and 4[th] respondents have been levyinginterest on the basis of the amendment effective from 01-04-2003 to Rule 8 (3) of the Central Excise Rules; thatwhen the OID Act was enacted, the provisions of Section11 AB of the Central Excise Act and Rule 8 (3) of theCentral Excise Rules providing for payment of interest didnot exist and after the said amended provisions in theCentral Excise Act and Rules providing for interest, theprovisions of the OID Act are not amendedcorrespondingly; that in the absence of amendment of theprovisions of the OID Act, which had never contemplatedpayment of interest and which alone is the charging Act,the amended provisions of the Central Excise Act and theCentral Excise Rules cannot be applied against thepetitioner. The petitioner relied upon the judgments inKhemka & Co. (Agencies) Pvt. Ltd. Vs. State of Maharastra[[1]], India Carbon Limited Vs. State ofAssam[[2]]and Devidas Gopal Krishan Ltd. Vs. Unionof India and Others[[3]].

22. The respondents filed a counter affidavitcontending as follows:

(a) As per sub section (2) of the OID Act, cess onpetroleum crude is payable by the persons by whom it isproduced on the quantity received in a refinery; under thesaid Act, the person liable to pay the cess on crude is theproducer company on the self assessment basis and it istheir responsibility to ascertain the receipt quantitiesagainst the dispatches made; nowhere does the law castany responsibility on the refinery and as such thedepartment cannot approach the refineries in this matter.

(b) As the provision of section 15 (4) of the OID Actis inclusive, the issue of collection of interest on delayedpayment of duty becomes automatically “substantive” interms of the said section.

(c) Duty includes interest as well. Therefore theprovisions of the Central Excise Act 1944 and the Rulesmade thereunder including those relating to refund andexemptions from duties shall, as far as may be, apply inrelation to the levy and collection of duties of excise

leviable under Section 15 (4) and for this purpose, theprovisions of the Central Excise Act shall have effect as ifthat Act provided for the levy of duties of excise on allitems specified in the schedule. Therefore the duties ofexcise to be collected as cess under the OID Act, have tobe collected as per the provisions of the Central ExciseAct and the Rules made thereunder. Therefore paymentsmade subsequent to the due dates under Rule 8 (3) haveto be considered as delayed payments of cess and thishas been substantiated by the Board in its letter FNo.262/22/82-CEX.8 and the Letter No.213/35/88-CEX.6dt.11-04-1989. (These proceedings have not been filed bythe respondents)

(d) The Board Circular No.18/88 dt.20-05-1988 didnot discuss about the due date for payment of cess andonly the trade notice No.13/2001 dt.14-03-2001 issued bythe 2[nd] respondent discussed about the due date for filingthe monthly return to the proper officer. Therefore the duedate for payment of cess on crude is to be generallyfollowed.

(e) The provisional payment of cess on bill of ladingquantities in the absence of dependable receipt quantity isbeing accepted by the department pending receipt of thedependable receipt quantities issued by the refineries onconsignment basis.

(f) The contention of the petitioner that evenassuming that the due date for payment of cess is the 5[th]of the following month, no interest is payable if payment ofcess is made during that month under Section 11-AB ofthe Central Excise Act is not valid.

(g) The further contention of the petitioner that if theinterest is not paid during that month, a liability to payinterest arises from the first date of the month succeedingthe month in which the duty ought to have been paid andthat Rule 8 (3) of the Central Excise Rules is ultra vires theprovisions of Section 11AB of the Central Excise Act isalso not valid.

23. Heard Sri S.Ravi, learned Senior Counsel forthe petitioner and Sri A.Rajasekhar Redy, learned SeniorStanding Counsel for the Central Government for therespondents.

24. Before we deal with the respectivecontentions, it is pertinent to note that the OID Act wasenacted by Parliament to provide for the establishment ofan Oil Industry Development Board for the development ofthe oil industry and for that purpose to levy a duty ofexcise on crude oil and natural gas and for other mattersconnected therewith. Section 15 of the said Act deals withthe levy and collection of a cess in the nature of a duty of excise and states as follows:

“s. 15. (1) There shall be levied and collected, asa cess for the purposes of this Act, on every itemspecified in column 2 of the schedule, which isproduced in India (including the continental shelfthereof) and- (a)removed to a refinery or factory; or (b)transferred by the person by whom suchitem is produced to another person, a duty ofexcise at such rate not exceeding the rate set forthin the corresponding entry in column 3 of theSchedule, as the Central Government may, bynotification in the Official Gazetee, specify:

Provided that until the Central Governmentspecifies by such notification the rate of the duty ofexcise in respect of crude oil (being an itemspecified in the schedule) the duty of excise oncrude oil under this sub-section shall be leviedand collected at the rate rupees sixty per tonne.

(2) Every duty of excise leviable under sub–section (1) on any item shall be payable by theperson by whom such item is produced, and in thecase of crude oil, the duty of excise shall becollected on the quantity received in arefinery.

(3) The duties of excise under sub-section91) on the items specified in the Schedule shallbe in addition to any cess or duty leviable onthose items under any other law for the time beingin force.

(4) The provisions of the Central Excisesand Salt, Act, 1944 and the rules madethereunder, including those relating to refunds andexemptions from duties shall, as far as may be,apply in relation to the levy and collection ofduties of excise leviable under this section and forthis purpose the provisions of that Act shall haveeffect as if that Act provided for the levy of dutiesof excise on all items specified in the Schedule.”

25. A circular No.18/88 dt.20-05-1988 wasadmittedly issued by the Government of India, Ministry ofFinance (Department of Revenue), New Delhi laying downthe procedure for assessment and payment of cess oncrude oil in the following manner:

“PROCEDURE FOR ASSESSMENT ANDPAYMENT OF CESS OF CRUDE OIL

(i) The dispatch of crude shall becovered by delivery tickets in form A1 and A2(enclosed). Two copies of the delivery ticketsshall be sent with the consignment out whichone copy shall be returned by the refinery tothe oil company duly certified by theauthorized agent of the refinery in token ofhaving received the crude oil. These deliverytickets should bear printed S.Nos. running forthe whole year beginning on 1[st] January.

(ii) Immediately on receipt of theinformation relating to the actual quantity ofnet crude oil received by the refinery orfactory; determined after test results; the oilproducing company shall debit the amount ofcess in the PLA kept for the purposeseparately for each refinery. Details oflaboratory tests on crude oil samples in form B(enclosed) shall also be furnished to theassessing officer for his verification andrecord.

(iii) Within 20 days after the close of eachmonth the producer (oil producing company)shall file with the proper officer inquadruplicate a monthly return in form D(specimen form enclosed) showing separatelyfor each refinery or factory the quantity ofcrude oil produced, the quantity dispatched and received at the refinery or factory, theparticulars of delivery tickets under whichsuch quantity was removed and amount ofcess paid during the month together withoriginal and duplicate copies of PLA receiptedtreasury challans on which deposit in theaccount current were made by payment intothe Government Treasury and delivery tickets.

(iv) On receipt of monthly return and copyof PLA register from the oil producingcompany, the proper officer shall finalize theassessment of cess of the crude oil receivedby the refinery or factory after scrutiny of therelevant records. If the amount due has notalready been paid, the proper officer shallcause a notice to be served upon the oilproducing company requiring them to makepayment of the amount assessed within tendays of the service of the notice.

(v) In case of oil company extracting oilin places situated in different Collectoratesand sending crude oil to differentCollectorates, the obligation for payment ofcess should be on the Regional Office of suchcompany and officer in whose jurisdictionsuch Regional office is situated.

(vi) After the return has been checked bythe proper officer the original copy of the returnalong with the original copy of the PLA shallbe sent to the Chief Accounts Officer, theduplicate return shall be sent to the AssistantCollector in charge of Division, the triplicateshall be returned to the oil producing companyand the quadruplicate returned along withcopies of delivery tickets and duplicate copy ofthe PLA shall be retained by the proper officerfor records.

(vii) The producing unit should also

furnish a list of records maintained andreports/returns submitted by them to thedifferent authorities to the Assistant Collectorsof Central Excise.”

Subsequently the 1[st] respondent issued a tradenotice No.13/2001 dt.14-03-2001 reiterating the saidGovernment of India Circular No.18/88 dt.20-05-1988 repeating ipsissima verba the contents of thesaid circular but without referring to the said circular.

26. As per the trade notice No.13/2001 dt.14-03-2001, the petitioner was paying cess provisionally everymonth on or before the 20[th] of the month in respect of thecrude oil supplies made to the refineries during thepreceding month. The payments were being made on thebasis of the bill of lading quantities pending theascertainment of the final quantities from the refineries. The petitioner initially had difficulty in getting the details ofthe actual quantities received by the refineries despiteseveral requests made by it to both the HPCL and BRPLrefineries and there was also evaporation and loss intransit from the point of extraction till delivery at therefineries. This was sorted out by January 2004 andthereafter the petitioner was paying cess on the quantitiescertified by the refineries as received on or before 20[th] ofthe following month.

27. But disputes arose between the petitionerand the respondents as to whether for the period prior toJanuary 2004 and thereafter, the due date for payment ofcess was the 5[th] of the following month as per Rule 8 (3)of the Central Excise Rules which governed the due dateof excisable goods (substituted w.e.f.

01-04-2003) ; whether there was a delay in payment ofcess; and whether interest was payable thereon by thepetitioner for the period between May 2001 and March2003?

28. The petitioner contends that the provisions ofthe OID Act do not provide for payment of interest; thoughunder Section 15 (4) of the OID Act, the provisions of theCentral Excise Act and the Rules made thereunder as faras may be are made applicable, they cannot be appliedmechanically without reference to the particular situationexisting with respect to the crude oil qua payment of cess;that if the 5[th] of the following month is not taken as the duedate, there is no delay in making payment and thereforethe petitioner is not liable to pay interest; Even otherwise,the 3[rd] and 4[th] respondents have no authority to levyinterest since OID Act, which is the charging andsubstantive statute does not prescribe payment ofinterest; that the 3[rd] and 4[th] respondents have beenlevying interest on the basis of the amendment effective

from 01-04-2003 to Rule 8 (3) of the Central Excise Rules;that when the OID Act was enacted, the provisions ofSection 11 AB of the Central Excise Act and Rule 8 (3) ofthe Central Excise Rules providing for payment of interestdid not exist and after the said amended provisions in theCentral Excise Act and Rules providing for interest, theprovisions of the OID Act are not amendedcorrespondingly; that in the absence of amendment of theprovisions of the OID Act, which had never contemplatedpayment of interest and which alone is the charging Act,the amended provisions of the Central Excise Act and theCentral Excise Rules cannot be applied against thepetitioner.

29. On the other hand, the respondents contendthat the provision of section 15 (4) of the OID Act isinclusive; that the issue of collection of interest on delayedpayment of duty becomes automatically “substantive” interms of the said section; that duty includes interest aswell; that therefore the provisions of the Central Excise Act1944 and the Rules made thereunder including thoserelating to refund and exemptions from duties shall, as faras may be, apply in relation to the levy and collection ofduties of excise leviable under Section 15 (4) and for thispurpose, the provisions of the Central Excise Act shallhave effect as if that Act provided for the levy of duties of excise on all items specified in the schedule. Thereforethe duties of excise to be collected as cess under the OIDAct, have to be collected as per the provisions of theCentral Excise Act and the Rules made thereunder. Therefore payments made subsequent to the due datesunder Rule 8 (3) have to be considered as delayedpayments of cess and interest is leviable on the delayedpayments under Rule 8 (3).

30. In our view, if the provision for levy of intereston delayed payments of cess is a substantive provisionand such provision is necessary to be provided in theOID Act, then interest cannot be levied even if there aredelayed payments of the cess. But if the provision for levyof interest on delayed payments of cess is a mereprocedural provision, then by virtue of the language in subsection (4) of Section 15 of the Act, such interest may beleviable on delayed payments of cess. If this question isanswered, in our opinion, the other question as to which isthe due date for payment of cess i.e. 20[th] of the followingmonth (as per GOI Circular No.18/88 dt.20-05-1988 asreiterated in the trade notice No.13/2001

dt.14-03-2001) or 5[th] of the following month (as per Rule 8(3) of the Central Excise Rules) need not be decided forthe reason that even if it is the latter date (5[th] of thefollowing month), no interest can be charged for the delayed payment of cess.

31. In Khemka & Co.’s case (1 supra), theSupreme Court was considering the question whether anassessee under the Central Sales Tax Act, 1956 (CentralAct) could be made liable for penalty under the provisionsof a State Sales Tax Act (State Act) for default in paymentof taxes within the prescribed time. The assesseecontended that there is no provision in the Central Act forimposition of penalty for delay or default in payment of tax,and therefore, imposition of penalty under the provisionsof the State Act for delay or default in payment of tax isillegal.The rival contention on behalf of the Revenue wasthat the provision for penalty for default in payment of taxas enacted in the State Act is applicable to the paymentand collection of the tax under the Central Act and isincidental to and part of the process of such payment andcollection. It relied upon Section 9 (2) of the Central Actwhich stated as follows:

“S.9 (2): Subject to the other provisions ofthis Act and the Rules made thereunder, theauthorities for the time being empowered toassess, re-assess, collect and enforce payment ofany tax under the general sales tax law of theappropriate State shall, on behalf of theGovernment of India, assess, re-assess, collectand enforce payment of tax, including any penalty,payable by a dealer under this Act as if the tax orpenalty payable by such a dealer under this Act isa tax or penalty payable wader the general sales tax law of the State; and for this purpose they mayexercise all or any of the powers they have underthe general sales tax law of the State; and theprovisions of such law, including provisionsrelating to returns, provisional assessment,advance payment of tax. registration of thetransferee of any business, imposition of the taxliability of a person carrying on business on thetransferee of, or successor to, such business,transfer of liability of any firm or Hindu undividedfamily to pay tax in the event of the dissolution ofsuch firm or partition of such family, recovery of taxfrom third parties, appeals, reviews, revisions,references, refunds, rebates, penalties,componding of offences and treatment ofdocuments furnished a dealer as confidential shallapply accordingly.

Provided that if in any State or part thereofthere is no general sales tax law in force, theCentral Government, may, by rules made in thisbehalf make necessary provision for all or any ofthe matters specified in this sub-section.”

The Supreme Court held:

“17. The deeming provision in the CentralAct that the tax as well as penalty levied under theCentral Act will be deemed as if payable under thegeneral sales tax law of the State cannot possiblymean that tax or penalty imposed under any StateAct will be deemed to be tax or penalty payableunder the Central Act. The entire authority of theState machinery is that "for this purpose" meaningthereby the purpose of assessing, re-assessing,collecting and enforcing payment of tax includingany penalty payable under the Central Act, they,meaning the State agencies, may exercise powersunder the general sales tax law of the State. Thewords "for this purpose" cannot have the effect ofenlarging the content of tax and the content ofpenalty payable under the Central Act. Liability to pay fax as well as liability to pay penalty is createdby the Central Act….

…..

21. ………..Penalty like imposition of taxcannot be included within the procedural part.

25. Penalty is not merely sanction. It is notmerely adjunct to assessment. It is not merelyconsequential to assessment. It is not merelymachinery. Penalty is in addition to tax and is aliability under the Act…………..

26. ……….The mere fact that there ismachinery for assessment, collection andenforcement of tax and penalty in the State Actdoes not mean that the provision for penalty in theState Act is treated as penalty under the CentralAct. The meaning of penalty under the Central Actcannot be enlarged by the provisions of machineryof the State Act incorporated for working out theCentral Act.

28. For the foregoing reasons we are ofopinion that the provision in the State Act imposingpenalty for non-payment of income-tax within theprescribed time is not attracted to impose penaltyon dealers under the Central Act in respect of taxand penalty payable under the Central Act. There isno lack of sanction for payment of tax. Any dealerwho would not comply with the provisions forpayment of tax, would be subjected to recoveryproceedings under the Public Demands RecoveryAct. A penalty is a statutory liability. The Central Actcontains specific provisions for penalty. Those arethe only provisions for penalty available against thedealers under the Central Act. Each State SalesTax Act contains provisions for penalties. Theseprovisions in some cases are also for failure tosubmit return or failure to register. It is rightly saidthat those provisions cannot apply to dealers underthe Central Act because the Central Act makessimilar provisions. The Central Act is a selfcontained code which by charging section creates liablity for tax and which by other sections creates aliability for penalty and impose penalty. Section9(2)of the Central Act creates the State authorities asagencies to carry out the assessment,reassessment, collection and enforcement of taxand penalty by a dealer under the Act.”

32. In India Carbon’s case (2 supra), a questionarose whether the assessee was liable to pay interest atthe rate specified under the provisions of Section 14 of theCentral Sales Tax Act, 1956 on the ground that Section 9(2) of the said Act (extracted above)creates the Stateauthorities (in this case the authorities under Assam SalesTax Act, 1947) as agencies to carry out the assessment,reassessment, collection and enforcement of tax andpenalty by a dealer under the Act. The assesseecontended that there was no mention of interest in the firstpart of Section 9 (2) of the Central Sales Tax Act andtherefore it is not liable to pay interest at the rate specifiedin Section 35A of the Assam Sales Tax Act, 1947 fordelay in payment of Central Sales Tax Act on interstatesales of petroleum coke. The Supreme Court relied onKhemka & Co.’s case (1 supra) and held at para 7 asfollows:

“7. ……….Interest can be levied andcharged on delayed payment of tax only if thestatute that levies and charges the tax makes asubstantive provision in this behalf.”

33. In Devi Dass Gopal Krishan’s case (3

supra), the question was whether the petitioner company was liable to pay interest on the delayed payment of cesson vegetable oil levied under the Produce Cess Act, 1966(for short “the 1966 Act”) r/w Vegetable Oils Cess Act,1983 (for short “the 1983 Act”) merely because Section 15of the 1966 Act and Section 3 of the 1983 Act madeapplicable the provisions of the Central Excise and SaltAct, 1944 and the Rules made thereunder, includingthose relating to refunds and exemptions from duty inrelation to the levy and collection of duties of excise onany produce specified in the schedule to the said Act (the1966 Act) as they apply in relation to levy and collection ofduty payable to the Central Government under that Act(the Central Excise Act). A Division Bench of the Punjab& Haryana High Court following India Carbon’s case (2supra) held at para 14 as follows:

“When the 1966 Act was enacted by theParliament, the Central Excise and Salt Act (nowknown as Central Excise Act, 1944) was in force.Therefore, instead of separately incorporating theprovisions relating to levy and recovery of dutyunder the 1944 Act and the rules made thereunder,including those relating to the refund andexemption from duty, the provisions of the 1944 Actwere made applicable for levy and collection ofduties of excise on any produce specified in thesecond schedule to the 1966 Act. A similarprovision was embodied in the 1983 Act in the formof Section 3(4). However, there is nothing in thelanguage of Section15(2)of the 1966 Act orSection3(4)of the 1983 Act from which it can be inferred that it authorises the Central Government tocharge interest on the delayed payment of cess.Section11AAwas inserted in the 1944 Act witheffect from 26.5.1995 by amending Act No. 22 of1995. However, no corresponding amendment wasmade in Section15(2)of the 1966 Act or Section3(4)of the 1983 Act so as to empower the CentralGovernment to charge interest in the case of defaultin the payment of cess. Therefore, we are inclinedto agree with Shri Batta that Section11AAof the1944 Act cannot be invoked by the respondents forcharging interest on the delayed payment of cessby the petitioner.”

34. We respectfully follow the decisions of theSupreme Court in Khemka & Co.’s case (1 supra) andIndia Carbon’s case (2 supra) and hold that interest can be levied and chargedon delayed payment of tax only if the statute that leviesand charges the tax makes a substantive provision in thisbehalf. Since the provisions of the OID Act do not containany provision for levy of interest on delayed payments ofcess, the respondents are not entitled to demand that thepetitioner pays interest on the alleged delayed paymentsof cess.

35. We are also in complete agreement with thedecision in Devi Dass Gopal Krishan’s case (3 supra)that when the OID Act was enacted by the Parliament, theCentral Excise and Salt Act (now known as the CentralExcise Act, 1944) was in force, that instead of separatelyincorporating the provisions relating to levy and recovery of duty under the 1944 Act and the rules madethereunder, including those relating to the refund andexemption from duty, the provisions of the 1944 Act weremade applicable for levy and collection of duties of exciseon any produce specified in the schedule to the OID Act.However, there is nothing in the language of Section 15(4)of the OID Act from which it can be inferred that itauthorises the Central Government to charge interest onthe delayed payment of cess. Section 11AA & AB wasinserted in the 1944 Act with effect from 26.5.1995 byamending Act No. 22 of 1995. However, no correspondingamendment was made in Section 15(4)of the OID Act soas to empower the Central Government to charge interestin the case of default in the payment of cess. Therefore,we hold that Section 11AA/11AB of the 1944 Act cannotbe invoked by the respondents for charging interest onthe delayed payment of cess by the petitioner.

36. Accordingly, the writ petition is allowed. Nocosts.

____________________________ JUSTICE GODARAGHURAM

___________________________________

JUSTICE M.S. RAMACHANDRA

DT:31-12-2012

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[1]AIR 1975 SC 1549

[2]AIR 1997 SC 3054

[3](2002) 140 ELT 56 (P&H)

RAO