Gujarat High Court
Jashwantlal Kantilal (Ankleshwar) ... vs Union Of India on 15 October, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/1128/2008 ORDER DATED: 15/10/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 1128 of 2008
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JASHWANTLAL KANTILAL (ANKLESHWAR) PVT. LTD. NOW SPHEREHOT
WA
Versus
UNION OF INDIA & ORS.
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Appearance:
MR KUNAL NANAVATI FOR NANAVATI ASSOCIATES(1375) for the
Appellant(s) No. 1
SHASHVATA U SHUKLA(8069) for the Opponent(s) No. 1,2,3,4
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 15/10/2025
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. Kunal Nanavati for Nanavati Associates for the appellant and learned advocate Mr. Heet B. Jhaveri for learned advocate Mr. Shasvat Shukla for the respondents.
2. This appeal is preferred under the Page 1 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined provisions of Central Excise Act, 1944 and the Rules made thereunder. Following substantial question of law is formulated for consideration vide order dated 06.08.2025 :
"Whether or not the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, at O- 20, New Mental Hospital Compound, Meghani Nagar, Ahmedabad - 380016 fundamentally erred while interpreting Sub-Rule 1(d) of Rule 173G and 173G (1)(e) of the Central Excise Rules, 1944 in holding that an outstanding amount of duty is required to be paid with interest calculated not after reducing the balance out of CENVAT credit."
3. Brief facts of the case are that the appellant is engaged in the manufacture of Electric Water Heater and was discharging its duty liability after availing the benefit of Cenvat credit and in terms of facilities of fortnightly payment. Page 2 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025
NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined
4. On scrutiny of monthly E.R.-I return for the month of May 2001, August 2001, September 2001 and October 2001, it was found that the appellant had short-paid the required amount of duty by the prescribed due date and subsequently, the duty was paid for the month of May, 2001 and August, 2001 along with interest and therefore, the appellant had made four defaults during the financial year 2001- 2002 by violating the conditions of erstwhile Rule 173G(1)(a),(b) of the Central Excise Rules, 1944 [New Rule 8 of Central Excise (No.2) Rules, 2001] which provides that if the appellant failed to pay the amount of duty payable by the due date, the appellant would be liable to pay the outstanding amount along with interest at the rate of 24% per annum on the Page 3 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined outstanding amount for the period starting with the first day after the due date till the actual payment of the outstanding amount.
5. According to the appellant, calculation of interest should be on reducing outstanding amount of excise duty against the balance of Cenvat credit and accordingly, total duty of Rs. 21,36,000/- was debited on 28.05.2022 by computing the interest at the rate of 24% per annum on the basis of reducing outstanding excise duty against the balance of Cenvat credit worked out to be Rs.1,21,292/- which was paid on 3.06.2002. However, as per the respondent department, interest ought to have been calculated from the alleged due date till actual date of payment on Page 4 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined 28.05.2002 which was computed at Rs. 3,18,050/-. As the demand on differential amount of interest comes to Rs.1,96,758/-, a show cause notice dated 1.03.2003 was issued to the appellant.
6. The adjudicating authority passed an order dated 28.10.2004 demanding interest amount of Rs.21,36,000/- under Rule 8 of Central Excise (No.2) Rules, 2001 read with section 11AB of the Central Excise Act, 1944 and penalty of Rs. 10,00,000/- under Rule 173Q(1) of the Central Excise Rules, 1944.
7. Being aggrieved, the appellant preferred an appeal before the Commissioner (Appeals), Central Excise and Customs who by order dated 17.02.2006 held Page 5 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined that computation of interest on the basis of reducing balance on CENVAT credit against the outstanding excise duty is not correct as per the provisions of sub-rule 1(d) of Rule 173G of the Central Excise Rules, 1944 and therefore, the method of calculation of interest by the appellant was held to be not sustainable and it was held that interest of Rs. 1,96,758/- is recoverable from the appellant. The First Appellate Authority reduced the penalty from Rs. 10,00,000/- to Rs. 2,00,000/-.
8. Being aggrieved, the appellant preferred an appeal before the Central Excise and Service Tax Appellate Tribunal West Zonal Bench, at Ahmedabad who by order dated 16.08.2007 rejected the contention of the appellant after referring to sub-rule 1(d) of 173G of the Page 6 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined Central Excise Rules, 1944 but reduced the penalty to Rs. 50,000/- from Rs. 2,00,000/- imposed by the first appellate authority. Being aggrieved, the appellant has preferred this appeal, and the aforesaid substantial question of law is formulated.
9. Learned advocate Mr. Kunal Nanavati for the appellant submitted that the appellant is entitled to calculate the interest on the basis of reducing balance after taking into consideration the balance of Cenvat Credit.
10. It was pointed out that both the authorities below and the Tribunal were not justified in interpreting the provisions of sub-rule 1(d) of Rule 173G Page 7 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined of the Central Excise Rules by interpreting the word "actual payment" as the date of payment for calculation of the interest. It was submitted that the appellant was entitled to adjust the amount of Cenvat credit for payment of excise duty and therefore, the balance of Cenvat Credit is required to be taken into consideration for calculation of the interest, and it would amount to actual payment, once the credit is available under Cenvat Credit Ledger (PLA).
11. It was further submitted that interest to be paid under Sub-rule 1(d) of Rule 173G of the Central Excise Rules, 1944 would be of compensatory in nature and therefore, same ought to have been computed on the basis of reducing balance Page 8 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined by taking into consideration balance of Cenvat credit.
12. Learned advocate Mr. Nanavati also referred to Rule 173G(1)(e) of the Central Excise Rules, 1944 to submit that the said rule provides for utilisation of Cenvat Credit by the assessee for discharge of its liability for payment of central excise duty and therefore, the appellant was justified in computation of interest on reducing balance method after taking into consideration the Cenvat credit.
13. On the other hand, learned advocate Mr. Heet B. Jhaveri for learned advocate Mr. Shasvat Shukla for the respondents submitted that the provisions of sub-rule 1(d) of Rule 173G of the Central Excise Rules is required to be interpreted Page 9 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined strictly and literally and the word stated in the said Rule "actual payment" is to be interpreted as date of payment and therefore, the amount available under the Cenvat Credit cannot be considered as actual payment. In support of his submission, reliance was placed on the decision of Hon'ble Supreme Court in case of Ranbaxy Laboratories Limited v. Union of India and others reported in (2011) 10 Supreme Court Cases 292 wherein Hon'ble Apex Court held as under:
"14. It is a well settled proposition of law that a fiscal legislation has to be construed strictly and one has to look merely at what is said in the relevant provision; there is nothing to be read in; nothing to be implied and there is no room for any intendment. (See: Cape Brandy Syndicate V/s. Inland Revenue Commissioners, [1921] 1 K.B. 64 and Ajmera Housing Corporation & Anr. V/s.
Commissioner of Income Tax, (2010) Page 10 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined 8 SCC 739)."
14. Having considered the rival submissions of both the sides, Tribunal has dismissed the appeal of the appellant by observing as under:
"2. However, while calculating the interest amount, the appellants quantified the same on the basis of reducing balances, after taking into account the cenvat credit taken by them. On the other hand, the Revenue felt that the appellant is required to pay the interest on the duty outstanding amount. Accordingly, proceedings were initiated and culminated into impugned orders confirming extra interest amount of Rs.1,96,658/- and penalty of Rs.2 lakhs.
3. Sub-rule 1(d) of Rule 173-G of Central Excise Rules, 1944 reads as under:
"If the appellant fail to pay the amount of duty payable by the due date, he shall be liable to pay the outstanding amount along with interest at the due rate of twenty four per cent per annum on the outstanding amount for the Page 11 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined period starting with the first day after due date till the actual payment of the outstanding amount."
4. In terms of the above rule, any outstanding amount of duty is required to be paid along with interest. The above provisions are unambiguous and there is no warrant to interpret them as if the duties required to be paid on the reducing balance of cenvat credit against outstanding excise duty. As such, I do not find any merits in the appeal. However, keeping in view the facts and circumstances, penalty of Rs.2 lakhs is reduced to Rs.50,000/-. But for the above modifications in the quantum of penalty, the appeal is otherwise rejected."
15. Sub-rule 1(d) of Rule 173G of the Central Excise Rules provides for levy of interest payable by the assessee if there is failure to pay the amount of duty payable by the due date by which the assessee would be liable to pay the outstanding amount along with interest at Page 12 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined the rate of 24% per annum on the outstanding amount for the period starting with the first day after due date till actual payment of the outstanding amount. Therefore word "actual payment" is required to be considered as a date till which the interest is to be paid from the first day after the due date.
16. The contention raised on behalf of the appellant is that amount of Cenvat Credit is required to be reduced on the first day itself for calculation of interest and therefore, the same would amount to actual payment and no interest should be levied on the amount lying in Cenvat credit. Literal interpretation of Sub-rule 1(d) of Rule 173G of the Rules would provide for levy of interest on the Page 13 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined outstanding amount of the duty from the first day after the due date till actual date of payment. Therefore, whatever is lying in Cenvat Credit cannot be considered to be amount having been paid on the first day after the due date. If Legislative intention is to consider the Cenvat credit to be part of the amount to be already paid, then it would have been clearly stated so in the Rules to that effect. The Hon'ble Apex Court in case of Kesari Nandan Mobile v. Office Assistant Commissioner of State Tax (2), Enforcement Divsion-5 (Judgment dated 14.08.2024 passed in Civil Appeal No.9543 of 2025) recently with regard to legislative intent held as under:
"20. The legal question we are asked to answer would require us to consider whether it is open to an authority, which is required to Page 14 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined adhere to the CGST Act and the CGST Rules scrupulously while exercising the draconian power of attaching a bank account, to act in any manner for issuing a second provisional attachment order on the specious ground that there is no embargo placed by the statute in that behalf.
21. We may profitably refer to certain decisions of this Court for guidance.
22. State of Odisha v. Satish Kumar Ishwardas Gajbhiye[(2021) 17 SCC 90] is not a decision relatable to powers of taxation but to holding of a preliminary inquiry, prior to initiation of disciplinary proceedings. However, we refer to this decision because it has approvingly quoted the dictum of the High Court at Calcutta of ancient vintage in Maniruddin Bepari v.Chairman of the Municipal Commissioners[1935 SCC OnLine Cal 296] . We prefer to quote the relevant passage from this Court's decision hereunder:
12. ... A statutory authority can do only such acts which are permissible under the statute and the authority cannot be permitted to do something which is not provided in law. This Page 15 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined principle was formulated by the Calcutta High Court nine decades ago in Maniruddin Bepari v. Chairman of the Municipal Commissioners, in which it was inter alia held:
"It is a fundamental principle of law that a natural person has the capacity to do all lawful things unless his capacity has been curtailed by some rule of law. It is equally a fundamental principle that in the case of a statutory corporation it is just the other way. The corporation has no power to do anything unless those powers are conferred on it by the statute which creates it."
(emphasis ours)
23. The principle of yesteryears, considered to be of immense substance and worth that a statutory authority, without statutorily conferred power, has no power to act in a particular manner, however, has to be read, in the present context, in light of what the Constitution of India ordains. Ever since the Constitution was enacted and with the march of administrative law, we feel that the age-old principle may not hold good in all circumstances.
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24. An instructive passage is found in the decision of the Constitution Bench of this Court in Rai Sahib Ram Jawaya Kapur v. State of Punjab [AIR 1955 SC 549] on the extent of executive powers that the Constitution reserves for the Central/State executive to exercise. It reads:
"7. Article 73 of the Constitution relates to the executive powers of the Union, while the corresponding provision in regard to the executive powers of a State is contained in Article 162. The provisions of these articles are analogous to those of Sections 8 and 49(2) respectively of the Government of India Act, 1935 and lay down the rule of distribution of executive powers between the Union and the States, following, the same analogy as is provided in regard to the distribution of legislative powers between them. Article 162, with which we are directly concerned in this case, lays down:
"Subject to the provisions of this Constitution, the executive power of a State shall extend to the matters with respect to Page 17 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined which the legislature of the State has power to make laws:
Provided that in any matter with respect to which the legislature of a State and Parliament have power to make laws, the executive power of the State shall be subject to, and limited by, the executive power expressly conferred by this Constitution or by any law made by Parliament upon the Union or authorities thereof."
Thus under this article the executive authority of the State is exclusive in respect to matters enumerated in List II of Seventh Schedule. The authority also extends to the Concurrent List except as provided in the Constitution itself or in any law passed by Parliament. Similarly, Article 73 provides that the executive powers of the Union shall extend to matters with respect to which Parliament has power to make laws and to the exercise of such rights, authority and jurisdiction as are exercisable by the Government of India by virtue of any treaty or any agreement. The proviso engrafted on clause (1) further lays down that although with Page 18 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined regard to the matters in the Concurrent List the executive authority shall be ordinarily left to the State it would be open to Parliament to provide that in exceptional cases the executive power of the Union shall extend to these matters also. Neither of these articles contain any definition as to what the executive function is and what activities would legitimately come within its scope. They are concerned primarily with the distribution of the executive power between the Union on the one hand and the States on the other. They do not mean, as Mr Pathak seems to suggest, that it is only when Parliament or the State Legislature has legislated on certain items appertaining to their respective lists, that the Union or the State executive, as the case may be, can proceed to function in respect to them. On the other hand, the language of Article 172 clearly indicates that the powers of the State executive do extend to matters upon which the State Legislature is competent to legislate and are not confined to matters over which legislation has been passed already. The same principle underlies Article 73 of the Constitution. These provisions of the Constitution therefore do not lend any support to Mr Page 19 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined Pathak's contention.
25. This proposition finds considerable support from another Constitution Bench decision of this Court in Lohia Machines Ltd. v. Union of India [(1985) 2 CC 197] wherein it was held that the legislature having exercised its essential function, a certain margin of latitude is always allowed to the executive in working out the details of exemption in a taxing statute. This Court referred to Pt. Banarsi Das Bhanot v. State of Madhya Pradesh[AIR 1958 SC 909], to emphasize the inherent power of the executive, where it ruled thus:
Now, the authorities are clear that it is not unconstitutional for the legislature to leave it to the Executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like.
26. We understand the law to be clear that not all laws are provided by statutory enactments Page 20 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined and law making could extend to orders passed by the executive in relation to matters where the Parliament/a State Legislature has the authority to enact laws, and the Parliament or a State Legislature, as the case may be, has even not enacted any such law; but, importantly, the inherent executive power cannot be exercised, in respect of any matter covered by statutory law/rules, in a manner inconsistent therewith. While so, law is also well-settled that the inherent executive power could be exercised to supplement the statutory law, but not supplant it."
17. In view of the above dictum of law when the legislative intent is only to levy the interest on the outstanding dues which are from the first day after the due date till actual payment which manifests from the Rule itself, the contention raised on behalf of the appellant cannot be accepted.
18. The appeal therefore, being devoid of Page 21 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025 NEUTRAL CITATION C/TAXAP/1128/2008 ORDER DATED: 15/10/2025 undefined any merit is accordingly dismissed. No order as to costs.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) RAGHUNATH R NAIR Page 22 of 22 Uploaded by RAGHUNATH R NAIR(HC00196) on Thu Oct 16 2025 Downloaded on : Fri Oct 17 01:27:16 IST 2025