Interest vs. Principal: Seeking Relief in Demand Orders

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"INTEREST MORE THAN PRINCIPAL" In many cases of Demand Orders for FY 2017-18, the interest amount exceeds the principal amount. There is no upper cap on interest. Can we seek relief in this matter? What Courts have held in the past?

1. Supreme Court 1.1 Khazan Chand (09-Feb-1984) AIR 1984 SC 762 Jammu and Kashmir General Sales Tax Act (20 of 1962) S.8(2): Assessing authority can impose interest for late payment of tax though its amount exceeded the amount of tax in respect of which default was committed.

1.2 Shiv Dutt Rai Fateh Chand (06-May-1983) (1983) 3 SCC 529 : AIR 1984 SC 1194 : (1983) 53 STC 289 Central Sales Tax, 1956 The Penal nature of the penalties itself is a sufficient guidance regarding maximum limits up to which penalties can be levied. A penalty cannot be

wholly disproportionate to the extent of infringement of law.

1.3 Tata Steel Ltd. (12-Feb-2016) (2016) 89 VST 1 (SC) : (2016) 11 SCC 147 : AIR 2016 SC 1705 In this case, when demand was confirmed because of interpretation of exemption, interest rate was reduced by the court to 12%.

2. Allahabad High Court 2.1 Kalyanpur Cold Storage, Kalyanpur (01-Mar-1990) AIR 1990 All. 218 Court is not obliged to award interest at maximum rate in every case.

Conclusion: "For every complex problem, there is a solution that is Simple, Neat and WRONG." ~ Henry Louis Mencken Accepting the stand of Deptt. that even in such a case, once the payment of duty is made, interest liability would follow would bring about an incongruent situation

The recovery of the unpaid or short-paid duty would become time barred. If the manufacturer does not pay it voluntarily, it would not be possible for the Department to recover the same.

But if he does it voluntarily despite completion of period of limitation, he would, further be saddled with the liability to pay statutory interest. Surely, this was not the intention of the Legislature while sub- Section( 2B ) was introduced in Section 11A of the Act.

Commissioner of Central Excise & Customs, Vadodara-II vs Gujarat Narmada Fertilizers Co. Ltd. - Gujarat High Court [2012-TIOL-273-HC-AHM-CX : (2012) 285 E.L.T. 336 (Guj.) The final conclusion is: "If you don't pay, no duty at all, but if you pay, you have to pay interest also !"