Kwality Ice Cream Company And Anr vs Union Of India And Ors
2012 Latest Caselaw 340 Del

         THE HIGH COURT OF DELHI AT NEW DELHI

%                                      Judgment delivered on: 18.01.2012

+       W.P.(C) 14414-15/2006

KWALITY ICE CREAM COMPANY AND ANR ... Petitioners

                                         versus

UNION OF INDIA AND ORS                                   ... Respondents

Advocates who appeared in this case:

For the Petitioners : Mr R. Narain with Ms Mallika Joshi, Ms Amrita Chatterjee and Mr Rajan Narain For the Respondents : Mr Satish Kumar

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE V.K. JAIN

BADAR DURREZ AHMED, J (ORAL)

1. By way of this writ petition, the petitioners seek the quashing of the

default notices of demand dated 04.08.2006 and 03.07.2006 and the demand

letters dated 07.03.2006, 09.12.2005 and 19.10.2005. By virtue of the said

letters, the respondents have demanded a sum of ` 24,05,332/- by way of interest

on the demand of central excise duty of ` 75,16,661/-. We may point out that by

virtue of an order-in-original dated 06.04.2000, a sum of ` 1,23,00,006/- was

demanded by way of duty short paid. When the petitioner went in appeal before

the Commissioner (Appeals), the said amount of duty was reduced to

` 75,16,661/- by his order dated 12.09.2001. It is relevant to mentioned that

neither in the order-in-original nor in the appellate order was there any direction

for payment of interest.

2. It is also the case of the petitioner that as the petitioner desired to close the

matter, it had agreed to pay the amount of ` 75,16,661/- and it was under an

understanding that the matter would be treated as closed and no further

proceedings would take place in respect of the same. It is on this basis that the

petitioner did not prefer any appeal before the Central Excise and Gold (Control)

Appellate Tribunal. Thereafter, no action was taken by the respondents.

However, after a lapse of about three years, the petitioner received a letter dated

10.11.2004, in which a demand of ` 24,05,332/-, which was described as

differential duty, was raised. But, as the petitioner had explained that the entire

amount of differential duty amounting to ` 75,16,661/- had been paid, it appears

that the respondents did not pursue the demand towards differential duty any

further. However, the department issued another letter dated 19.10.2005,

wherein it demanded the said sum of ` 24,05,332/-, this time, towards the

payment of interest on the differential duty of ` 75,16,661/-, purportedly under

the provisions of Section 11AA of the Central Excise Act, 1944.

3. The short point that arises for consideration in this writ petition is whether

the demand for payment of interest would be barred on account of delay and

laches. The learned counsel for the petitioner submitted that the amount

determined by the Assistant Commissioner in the order-in-original was ultimately

reduced by the Commissioner (Appeals) to ` 75,16,661/- by virtue of the order

dated 12.09.2001. The said amount was paid shortly thereafter on 23.10.2001

and thereafter a letter dated 24.10.2001 was sent to the Commissioner of Central

Excise enclosing the challan dated 23.10.2001. The matter rested there and it is

only after a lapse of over three years that the first letter, raising the demand of

` 24,05,332/-, was received by the petitioner which was also purportedly towards

differential duty. However, as the petitioner had explained that the entire duty

amount had been paid, the department issued the said letter dated 19.10.2005,

demanding interest of ` 24,05,332/-. The learned counsel for the petitioner

submitted that the demand for interest, even if the starting point is taken as the

date of the order passed by the Commissioner (Appeals), that is, 12.09.2001, is

highly belated inasmuch as the first demand for interest was made on 19.10.2005.

4. The learned counsel for the petitioner drew our attention to a decision of

the Tribunal reported in 1996 (86) DLT 144 entitled Collector of Customs,

Madras v. TVS Whirlpool Limited, in which it was held that the lower authority

was right in holding that the demand beyond the period of six months from the

clearance of goods, was barred by limitation. This conclusion was arrived at

based on the logic that the period of limitation for demanding interest ought to be

the same as the period of limitation for demand of duty. This matter was carried

in appeal to the Supreme Court. The matter was numbered as Civil Appeal

No. 7299-7309/1997. The Supreme Court by an order dated 07.10.1999 held as

under:-

"It is only reasonable that the period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon. We find no merit in the appeals and they are dismissed with costs."

5. It is, therefore, clear that the principle adopted by the Supreme Court was

that the period of limitation, unless otherwise stipulated by the statute, which

applies to a claim for the principal amount should also apply to the claim for

interest thereon. If that be the position, the period of limitation prescribed for

demand of duty under Section 11A is normally one year and, in exceptional

circumstance of a case falling under the proviso to Section 11A(1), the period of

limitation is five years. But that would be applicable only in case of

misstatement, fraud, concealment etc., which is not the case here. As such, in the

present case, the period of limitation for the demand for duty would be one year.

By the same logic, the period of limitation for demand of interest thereon would

be one year. Inasmuch as the demand for interest has been made beyond a period

of one year, the demand would be clearly hit by the principle of limitation as laid

down by the Supreme Court. Even if, we take the letter dated 25.10.2004 as the

first demand of interest, although that letter was in respect of a demand for

differential duty, the demand would still be beyond a period of three years.

6. In view of the fact that we have taken a decision, as indicated above, we

are not examining the other point raised by the learned counsel for the petitioner

that the duty itself was not payable in view of the decisions of the Supreme Court

in respect of its sister concerns in relation to common agreements. However, the

learned counsel for the respondents in that regard has submitted that the

Commissioner's order dated 12.09.2001 had become final and, therefore, that

aspect of the matter ought not to be looked into. In any event, as we have

indicated above, since we have decided this writ petition only on the question of

limitation, we have not gone into the second aspect of the matter.

7. The impugned demands and letters demanding a sum of ` 24,05,332/-

towards interest on central excise duty stand quashed. The writ petition stands

allowed. There shall be no order as to costs.

BADAR DURREZ AHMED,J

V.K. JAIN, J JANUARY 18, 2012 SR