Interest is payable on finalisation of assessment only when finally there is short payment.

PJ/Case Laws/2012-13/1181

Citation:- 2012-TIOL-10-HC-KAR-CX

Case:- TOYOTA KIRLOSKAR AUTO PARTS PVT LTD Vs C.C.E. LTU, BANGALORE

Issue:-Interest is payable on finalisation of assessment only when finally there is short payment.

Brief Facts:-The appellate is the manufacturers of parts of motor vehicles. These goods are cleared on payment of appropriate central excise duties.The major buyer of these goods is M/s Toyota Kirloskar Motors Pvt. Ltd. The Appellant and the purchaser are interconnected undertakings and have business interest with one another in the context of Section 4(1)(b) of the Central Excise Act, 1944. The appellant requested the adjudicating authority of Central Excise, Large Taxpayers Unit, Bangalore for assessment of goods manufactured and cleared by them to their interconnected unit provisionally for the financial year 2007-08, Accordingly, the order dated 24.04.2007 came to be passed in terms of Rule 7 of the Central Excise Rules, 2007 and subject to the execution of bond of Rs. 50 Lakhs with bank guarantee for Rs. 12.5 Lakhs. Bond were executed and the bank guarantee was furnished. Thereafter, on 25.09.2008 the assessee requested for finalization of the subject provisional assessment. After considering the entire material made available, the Assessing Authority passed the final order which read as under

1) In respect of certain items, the provisional value adopted by the assessee is less than the final value arrived based on the Cost Accountant certificate which has resulted in short payment of duty of Rs. 10, 63,417/- including Education Cess and Secondary & Higher Education Cess and the same is demanded in terms of Rule of the Central Excise Rules, 2002.
2) The amount of Rs. 10,63,417/- including Education Cess and Secondary & Higher Education Cess paid by the assessee vide Invoice No. 2733 dated 25.09.2008 is appropriated.
3) Demand of interest amounting to Rs. 1, 34,634/-
4) In respect of certain items, the provisional value adopted by the appellant is more than the final value arrived based on the Cost Accountant certificate which has resulted in excess payment of duty of Rs. 1,77,20,157/- including Education Cess and Secondary & Higher Education Cess and the same is confirmed. However the appellant in his letter dated 25.09.2008 has undertaken no to claim any refund of duty paid which is refundable by the department for the financial year 2007-08 since the same has already been passed on to M/s Toyota Kirloskar Motor and the same has been taken into account.

Aggrieved by the said order, the appellant preferred an appeal to the Commissioner of Appeals who upheld the order. Aggrieved by the said order, the appellant preferred an appeal to the Tribunal, which also dismissed the same. Therefore, the appellant is filed appeal before High court.

Appellant’s contention:-The appellant submit that if the total duty paid provisionally is taken into consideration, there was no short payment of duty at all. On the contrary, they had paid the excise duty in excess of Rs.1.66 crores and therefore, the question of payment of interest on the ground of short payment of duty in respect of certain items would not arise. However, the said contention was not accepted as it is clear from the adjudicating order.

Reasoning of judgement:-The High Court Heard both the parties and considered the Rule 7 of the Central Excise Rules, 2002. Rule 7 reads as under:-

"Rule 7. Provisional assessment - (1) 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 raw or on such value as may be specified by him.

(2) 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 of 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 assesses 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-

(a) the duty of excise paid by the manufacture, if he had not passed on the incidence of such duty to any other person; or
(b) the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person."

The High Court further find that aforesaid provision makes it clear that, where the appellant is unable to determine the value of excisable goods or determine the rate of duty applicable thereto, he may request the competent authority as provided in the said provision, to permit him to pay the duty on provisional basis at such rate or on such value as may be specified by him. If the authority is satisfied, he may pass an order permitting such payment and taking all necessary steps for payment of any short fall in the duty payable at the end of assessment. Thereafter, a final assessment order is to be passed. If after the final assessment; if it is found that there is a short fall in payment of duty, sub-rule (4) provides for payment of interest on such short payment of duty. Whereas sub-rule (5) provides for refund of excess duty paid.

It is also considered by High Court that after a final assessment order is passed, if the duty paid in terms of provisional assessment is less than the duty payable after the final assessment, the assessee is liable to pay the interest on the short fall. In the entire scheme of Rule 7, there is no indication that when an assessee is permitted to pay duty in pursuance of a provisional assessment order, if he is dealing with more than one goods, they have to be treated separately. Even though the duty payable under the Act is to be calculated under each head of each case ultimately it is the total duty payable for all the goods which are the subject matter of the provisional assessment and final assessment which is to be taken into consideration. If after taking into consideration the duty payable in respect of all the goods and the duty paid in pursuance of the final assessment order, if still the assessee is due in any duty, then for the short fall in payment of duty, the assessee is liable to pay interest.

The Adjudication Authority has held the short fall in payment of duty after the final assessment order as Rs. 10,63,417/-. In respect of other items, the appellant has paid Rs. 17720157/- in excess. Before imposing interest, the authority should have deducted the short fall in the excess payment made. If there is no payable of duty, payment of interest does not arise. The approach of the authorities in this regard is erroneous, unwarranted and unsupported by the statutory provisions. The entire approach of the department is unreasonable, contrary to the scheme of the Act and negatives the principle underlying these provisions.

Decision:Appeal allowed & Tribunal’s order set aside.

Comment:- This landmark judgement clearly underlines that the interest liability will occur only when there is ultimately shortfall in duty payment. We have to adjust the excess payment for certain goods with the short payment for other goods and then arrive at final figure. When this final figure amounts to shortfall in duty then the interest is payable on such amount. But if this final figure results in excess payment then no interest is payable. This decision has also bring about the mentality of the department where they are claiming interest when there is shortfall of any goods. This approach is not correct. Like in this case also, when the amount is refunded to the manufacturer but the department is demanding interest.

Comments

PJ/Case Laws/2012-13/1181

Post a Comment

Query