CESTAT Upholds ₹1.29-Crore Duty Demand Against Surat Textile Processor Despite Section 3A’s Omission, While Setting Aside Interest And Penalties

Rangoli Prints processed man-made fabrics using four hot-air stenter chambers and was subject to the compounded levy scheme under Section 3A of the Central Excise Act, 1944.

The Department issued three show-cause notices seeking duty for periods between April 2000 and February 2001, together with interest and penalties under Rule 96ZQ of the Central Excise Rules, 1944. After an earlier remand, the Commissioner confirmed the demands and imposed penalties.

On appeal, Rangoli Prints argued, among other things, that proceedings could not continue after Section 3A and the relevant Rules had been omitted, and that interest and penalties under Rule 96ZQ were invalid.

The Tribunal considered Section 3A of the Central Excise Act, 1944; Rule 96ZQ of the Central Excise Rules, 1944; Section 6 of the General Clauses Act, 1897; and Section 38A of the Central Excise Act.

It relied principally on Shree Bhagwati Steel Rolling Mills v. Commissioner of Central Excise, in which the Supreme Court held the interest and penalty provisions in Rules 96ZO, 96ZP and 96ZQ invalid because Section 3A did not authorise those levies.

The Tribunal also considered authorities on the effect of omission, including Krishna Processors v. Union of India, Gopal Iron and Steel Co. (Gujarat) Ltd. v. Union of India, and Commissioner of Central Excise, Jaipur-I v. Savitri Concast Ltd.

The Tribunal distinguished the survival of the duty demand from the invalidity of interest and penalties.

It treated Shree Bhagwati Steel Rolling Mills as establishing that interest and penalty could not be imposed under Rule 96ZQ, and therefore set those amounts aside.

On the duty demand, it acknowledged authorities addressing whether proceedings lapse following omission of Section 3A and the relevant Rules, including the Gujarat High Court’s decision in Gopal Iron and Steel. It nevertheless concluded, relying on Shree Bhagwati Steel Rolling Mills, that the duty demand adjudicated after omission survived.

The appeal was partly allowed.