Gujarat High Court
Jashwantlal Kantilal (Ankleshwar) ... vs Union Of India on 15 October, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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any merit is accordingly dismissed. No
order as to costs.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
RAGHUNATH R NAIR
