Brief Facts of the Case
The Appellants are engaged in manufacture of tyres, tubes and flaps falling under Chapter Heading 40 to the First Schedule of the Central Excise Tariff Act, 1985. The period relevant for the purpose is April 2010 to March 2011. The Appellant cleared the manufactured goods, to their depot/C & F Agent etc. for subsequent sale in the replacement market and secondly, the original equipment manufacturers or other buyers from the factory gate.
They cleared the aforesaid manufactured goods on payment of central excise duty as per the value determined in terms of section 4(1)(a) and section 4(1)(b) of the Central Excise Act. Thus, the Assessee paid the duty on the transaction value/normal transaction value as the case may be. The Assessee has set out the details, the mode of computation and the tax amount and stated that in cases of clearance of their goods to depot/distribution centres/C & F Agencies for sale in the replacement market, the normal transaction value, namely, the price actually to be realized was not known. This was because the Assessee claimed certain deductions and permissible in terms of this statute. Since these deductions could not be quantified they were determined ad hoc. In the light of the above, it was not possible for the Assessee to do the self assessment at the time of clearance. Therefore, the Appellants cleared the manufactured goods on provisional assessment basis under Rule 7 of the Central Excise Rules, then, prevailing.
The Superintendent of Central Excise for finalization of the provisional assessment for the particular financial year. While furnishing the aforesaid details to the concerned authorities, pertinently, the Appellants also paid the differential duty without waiting for normal order of Deputy/Assistant Commissioner finalizing the provisional assessment. Thus, during the relevant period the Appellants had paid the differential duty amount before passing of order for finalization of assessment.
A notice to show cause-cum-demand came to be issued on seeking to recover from the Assessee the interest of Rs.5,11,090/- under Rule 7(4) of the Central Excise Rules read with section 11AB of the Act on the amount of differential duty paid on the finalization of provisional assessment by the Appellants during the relevant period. The matter has been adjudicated by Commissioner (Appeals) and CESTAT against the assessee. Being aggrieved by the said order, the appellants preferred an appeal before this court.
Contentions of the Appellants
The appellant contended that on a plain reading of Rule 7(4) of the Central Excise Rules, 2002, the liability to pay interest would arise only if an amount payable is determined consequent to the final assessment. Thus, the first part of the Rule has to be attracted and if that is attracted and is applicable, then, alone there is an obligation to pay interest. In other words, the liability to pay interest does not arise unless the finalization of the assessment results in any additional or differential liability. Once that assessment is determined, then, on that the interest is leviable and in terms of the later part of the Rule. If this is how the Rule is read and must be read, then, in the present case the Appellant has no liability to pay the interest. The Appellant has paid even the differential duty prior to the finalization of the assessment. Therefore, it is not as if the liability arises on finalization of the assessment. In these circumstances, the Revenue cannot recover interest and which is not provided by law.
The appellant relied on various judgments in the case of Ispat Industries Ltd. V/s. Commissioner of Central Excise reported in 2007 (209)E.L.T. 280, Tata Motors Ltd. V/s. Commissioner of Central Excise reported in 2008(226) E.L.T. 563. It was submitted that the view taken in decision of Ispat Industries by the Tribunal has been approved by this Court inasmuch as the Revenue’s Appeal came to be dismissed. If the Revenue’s Appeal was dismissed in that case and as well in the case of Ispat Industries, then, the Tribunal seriously erred in law in maintaining the order passed by the Commissioner and the Appellate Authority.
The appellant further relied on the Constitution Bench of the Hon’ble Supreme Court in the case of J. K. Synthetics Ltd. V/s. Commercial Taxes Officer reported in (1994) 4 SCC 276 wherein it was held that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments.
Contentions of the Revenue
The Revenue contended that the Tribunal’s view is fair, just and proper. The Tribunal has applied the principle that if there is a liability to pay interest and which relates back to the date of determination, then, any process or method by which such tax, which is due and legitimately recoverable, is paid belatedly, the interest on the same must be charged. The interest is, therefore, payable in the present case and merely because the Assessee has pre-empted the recovery by making the payment of differential duty before finalization of the assessment does not mean the liability to pay interest ceases. It still very much subsists and that is how Rule 7(4) must be read. It is futile to urge that two interpretations are required to be placed and, namely, on the first and second part of Rule 7(4). The Revenue relied upon the judgment of the Hon’ble Supreme Court in the case of Commissioner of Central Excise, Pune V/s. SKF India Ltd. reported in 2009 (239) E.L.T. 385 and Commissioner of Central Excise V/s. International Auto Ltd. reported in 2010 (250) E.L.T. 3.
The Revenue further submitted that now the larger Bench decision of the Tribunal is available in the case of Cadbury India Ltd. V/s. Commissioner of Customs and Central Excise, Pune-I reported in 2008(232) E.L.T. 224 and which completely covers the controversy. The larger Bench follows the Hon’ble Supreme Court’s judgments in the cases referred above and equally, distinguishes those rendered by it earlier and confirmed by this Court. Reliance has also been based upon a judgment of the Division Bench of Karnataka High Court in the case of Commissioner of Central Excise, Mysore-I V/s. J. K. Industries Limited reported in 2011 (268) E.L.T. 168.
Held by Hon’ble High Court of Bombay
The Hon’ble High Court referred to Rule 7 of the Central Excise Rules, 2002 applicable at the relevant time and reads as under:-
“RULE 7. Provisional Assessment. –
Where the assessee is unable to determine the value of excisable goods or determine the rate of duty applicable thereto, he may request the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, in writing giving reasons for payment of duty on provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, may order allowing payment of duty on provisional basis at such rate or on such value as may be specified by him.
The payment of duty on provisional basis may be allowed, if the assessee executes a bond in the form prescribed by notification by the Board with such surety or security in such amount as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, deem fit, binding the assessee for payment of difference between the amount of duty as may be finally assessed and the amount of duty provisionally assessed.
(3) The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall pass order for final assessment, as soon as may be, after the relevant information, as may be required for finalizing the assessment, is available, but within a period not exceeding six months from the date of the communication of the order issued under sub-rule(1)
Provided that the period specified in this sub-rule may, on sufficient cause being shown and the reasons to be recorded in writing, be extended by the Commissioner of Central Excise for a further period not exceeding six months and by the Chief Commissioner of Central Excise for such further period as he may deem fit.
(4) The assessee shall be liable to pay interest on any amount payable to Central Government, consequent to order for final assessment under sub-rule (3), at the rate specified by the Central Government by notification issued under section 11AA or section 11AB of the Act from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof.
(5) Where the assessee is entitled to a refund consequent to order for final assessment under sub-rule (3) subject to sub- rule (6), there shall be paid an interest on such refund at the rate specified by the Central Government by notification issued under section 11BB of the Act from the first day of the month succeeding the month for which such refund is determined, till the date of refund.
(6) Any amount of refund determined under sub-rule (3) shall be credited to the Fund:
Provided that the amount of refund, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to
the duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person; or
The Hon’ble Court stated that in the present case, the Assessee volunteered on its own to determine the liability of duty and the amount in that behalf came to be paid. That was before the finalization of the assessment. There resulted nothing consequent to finalizing of assessment. The amount as received earlier, namely, on provisional assessment and the later voluntary exercise of the Assessee was the sum payable and recoverable. It is in these circumstances that the Tribunal proceeded on the footing that Rule 8 will be of the assistance in construing Rule 7 (4). Then, the Tribunal placed upon its larger Bench decision in the case of Cadbury India Ltd. (supra) and following it so also that of the High Court of Karnataka dismissed the Assessee’s Appeal
The Hon’ble Court stated that the Hon’ble Supreme Court in the case of SKF India Ltd. (supra) concluded that if the object of the law is to state clearly and unambiguously the obligations of the person whom the law addresses and to spell out plainly and without any confusion the consequences of failure to discharge the obligations cast by the law, then, the four sections of the Act fall miles short of the desired objective.
The Hon’ble Court stated that when a statute levying and imposing tax makes specific provision for recovery of interest on delayed payment only, then, such interest and the liability to pay the same arises. In that regard, the Constitution Bench judgment in the case of J. K. Synthetics Limited V/s. Commercial Taxes Officer (supra) referred to the Rajasthan Sales Tax Act, 1954.
The Hon’ble Court stated that in the case before this Court in Commissioner of Central Excise V/s. Ispat Industries Ltd. the facts were that differential duty was paid prior to the date of final assessment. The Division Bench in confirming the view of the Tribunal held as under:-
“2. This appeal has been admitted on the following question of law: “Whether the CESTAT was right in holding that in terms of the provisions of Rule 7(4), respondent No. 1 could not be held liable to pay the interest on the differential duty as the duty amount has been paid prior to the final assessment, especially when provisions of Rule 7(4) of Central Excise Rules, 2002 read with Section 11AB(2B) of Central Excise Act, 1944, explicitly stipulates that interest is payable on delayed payment of any amount, at the appropriate rates from the first day of the month succeeding the month for which such amount is determined till the date of payment thereof.
Perusal of the order of the CESTAT [2007 (209) E. L. T. 280 (Tribunal) shows that in the present case, differential duty was paid prior to the date of final assessment. Interest under Rule 7(4) of the Central Excise Rules, 2002 is payable from the first date of the month succeeding the month for which such amount is determined by the final assessment till the date of payment. Since differential duty was paid even before the final assessment was made, the Tribunal has held that the respondent assessee is not liable to pay interest. In our opinion, no fault can be found with the order of the Tribunal. Accordingly, question raised by the revenue is answered in favour of the assessee and against the revenue. The appeal is disposed of. No. order as to costs.”
The Revenue carried an Appeal from the order passed in the case of Ispat Industries Ltd. to the Hon’ble Supreme Court but the Special Leave Petition was dismissed. In the case of Tata Motors, the Tribunal once again followed the view taken in Ispat Industries Ltd. and allowed the Assessee’s Appeal.
In the case of Tata Motors, the provisional assessments were finalized but before finalizing the same, differential duty was paid and hence adjudicating authority only adjusted the amount of the duty already paid against the duty finalized.
The Hon’ble Court stated that from a reading of this judgment that the conclusion in the larger Bench decision of the Tribunal cannot be applied to cases which are expressly noted in M/s. Ispat Industries Ltd. and Tata Motors Ltd. Rule 7 and its sub-rules if read together would denote as to how the Revenue secures itself against any provisional assessment. If on a provisional assessment, certain amount of duty is paid, but it is not accurate and correct, then, the final assessment is contemplated on a finalization of the assessment. Upon finalizing, it is possible that the Revenue will determine the duty liability and to that of something more that has been recovered in the provisional assessment. When that exercise is finalized and consequent thereon that the Assessee shall be liable to pay interest on any amount payable to the Central Government. Thus, the liability to pay interest arises on any amount payable to Central Government and consequent to order for final assessment under Rule 7 sub-rule (3). The Hon’ble Court is in agreement with the Assessee in the present case that the later part of sub-rule (4) is not attracted. The liability to pay interest on any amount payable to Central Government consequent to order for final assessment is not a situation to be found in the present case. It is not the argument of the Revenue that what was paid by the Assessee as differential duty and prior to finalizing of the assessment is not correct, accurate or proper computation of the liability. Having found that the final assessment resulted in nothing due and payable to the Government, there is not any justification then to recover interest. If the interest was to be recovered and was indeed payable on the date on which the Assessee made payment of differential duty and prior to finalization of the assessment, then, the Rule would have specifically said so. In the absence of any such stipulation in the Rules the dictum in the decision of the Hon’ble Supreme Court in J.K. Industries Ltd. would apply. If that principle can be applied, then, there was no liability to pay interest. If the liability to pay interest between the time or the period of provisional assessment and payment of differential duty until the final assessment has to be read in the Rule, that is not possible. The interest in this case is not payable merely on equitable considerations. Such being the position, the Tribunal was not justified in dismissing the Assessee’s Appeal. The Tribunal was also not justified in placing reliance upon its larger Bench decision. The larger Bench decision took assistance of the substantive provisions and particularly section 11A and section 11AB of the Act.
In view of the above, the appeal is allowed.