TaxTMI 
TaxTMI 
TaxTMI 
The Hon’ble Calcutta High Court in the case of Commissioner of Central Excise, Bolpur Commissionerate v. M/s Steel Authority of India Limited [2025 (12) TMI 1307 - CALCUTTA HIGH COURT] held that no substantial question of law arises from the Tribunal’s order which, on finding the situation revenue-neutral, set aside demand of interest and consequently declined to interfere with the Tribunal’s decision.
Facts:
Commissioner of Central Excise, Bolpur Commissionerate ('the Appellant') filed an appeal against the order of the Customs, Excise and Service Tax Appellate Tribunal, Kolkata dated September 15, 2023 in Excise Appeal No. 396 of 2006 with Excise Appeal No. 914 of 2011 - 2023 (9) TMI 915 - CESTAT KOLKATA, whereby the Tribunal held that no interest was payable by the assessee on the confirmed duty demand on the ground of revenue neutrality and accordingly set aside the demand of interest while rejecting the assessee’s refund claim.
M/s Steel Authority of India Limited ('the Respondent') is a manufacturer of excisable goods falling under Chapters 72, 73 and 86 of the Schedule to the Central Excise Tariff Act, 1985 and manufactures iron and steel products such as billets, rounds and HT bars which are cleared to various conversion units on stock transfer basis for further processing after payment of central excise duty at applicable rates and education cess and the conversion units use the said goods for further manufacture of goods on behalf of the assessee.
The Respondent often sends billets, rods and HT bars to various job workers under its own excise invoices on payment of appropriate duty on declared value for manufacture of its final products under Chapters 72, 73 and the dispute concerns valuation for central excise purposes of goods cleared to job workers where there is no sale involved so valuation could not be made under Section 4(1)(a) of the Central Excise Act, 1944, requiring resort to the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
The Appellant took the position that during the relevant period after July 1, 2000 when amended Section 4 and Valuation Rules, 2000 came into force the assessee not only cleared goods to job workers but also sold identical goods to independent buyers at factory gate and thus all clearances were not captively consumed and therefore Rule 8 of Valuation Rules, 2000 which applies where the manufacturer uses all goods for captive consumption was inapplicable and Rule 11 read with Section 4(1)(a) should be applied so that value of goods cleared to job workers is determined based on transaction value of similar goods sold to independent buyers and on these premises show cause notice dated August 4, 2005 was issued proposing recovery of short-paid duty under Section 11A with interest under Section 11AB and penalty under Section 11AC.
The adjudicating authority by order-in-original dated March 31, 2006 confirmed central excise duty of Rs. 15,65,36,574/- and education cess of Rs. 1,11,973/- under Section 11A demanded interest under Section 11AB and imposed penalty of Rs. 15,66,48,557/- under Section 11AC read with Rule 173Q of Central Excise Rules, 1944 and Rule 25 of Central Excise Rules, 2001/2002.
The Respondent contended before the High Court that identical goods were sold to independent buyers at factory gate and therefore Section 4(1)(a) transaction value should govern valuation for goods sent to job workers and that adoption of factory gate sale price resulted in payment of duty on higher assessable value leading to excess duty which is refundable and further pleaded absence of suppression or intent to evade duty as all returns and documents were duly filed rendering extended limitation unjustified and prayed for quashing proceedings initiated by show cause notice.
The Appellant contended that Tribunal erred in setting aside interest under Section 11AB when duty demand under Section 11A had attained finality and duty was admittedly paid belatedly and that Section 11AB operates in tandem with Section 11A making interest automatic once duty is found short-paid regardless of revenue neutrality or availability of Modvat/Cenvat credit.
Issue:
Whether the Customs, Excise and Service Tax Appellate Tribunal was justified in setting aside interest under Section 11AB of the Central Excise Act, 1944 on the confirmed duty demand on the ground of revenue neutrality?
Held:
The Hon’ble Calcutta High Court in 2025 (12) TMI 1307 - CALCUTTA HIGH COURTheld as under:
- Observed that, the appeal arises from the Tribunal’s order dated September 15, 2023 whereby Tribunal held that no interest was payable by the assessee on the confirmed duty demand on the ground of revenue neutrality and accordingly set aside demand of interest while rejecting assessee’s refund claim.
- Observed that, the Tribunal recorded a clear finding that the situation is revenue-neutral inasmuch as the duty paid by the assessee was available as Cenvat credit to its downstream units and there is no net loss of revenue to the exchequer.
- Noted that, the Tribunal held that levy of interest would be unwarranted and purely compensatory interest cannot be insisted upon when there is, in substance, no pecuniary prejudice to the revenue and that the assessee was not entitled to refund of duty already paid having regard to finality of order-in-original and statutory scheme of Section 11B.
- Held that, this Court is not persuaded to interfere with the impugned order of the tribunal and is not satisfied that the Tribunal has committed any jurisdictional error or perversity warranting interference in appeal.
- Held that, no substantial question of law arises from the appeal and accordingly the appeal and all connected applications are disposed of without any order as to costs.
Our Comments:
The Tribunal’s approach, as noticed and accepted by the High Court, treats the concept of revenue neutrality as relevant to deciding whether compensatory interest under Section 11AB should be insisted upon where duty has been paid and is fully available as Cenvat credit to downstream units, resulting in no net revenue loss. The Tribunal, however, maintained the finality of the original duty demand and refused refund under Section 11B, emphasising that the assessee could not indirectly assail the demand via refund proceedings once the order-in-original had attained finality.
The revenue relied on Supreme Court decisions in CCE v. SKF India Ltd. [2009 (7) TMI 6 - Supreme Court] and Steel Authority of India Ltd. v. CCE, Raipur [2019 (5) TMI 657 - Supreme Court] where it was held that payment of differential duty at a later stage under Section 11A(2B) or otherwise squarely attracts interest under Section 11AB and that such interest is automatic, compensatory and not dependent on presence of fraud or suppression. In those cases, Supreme Court treated interest as inextricably linked to belated payment of duty and not as a discretionary levy based on revenue impact. The Tribunal distinguished the present case on revenue-neutrality facts and the High Court, instead of directly reconciling SKF India and SAIL (Raipur), confined itself to examining whether CESTAT’s view disclosed perversity or jurisdictional error and concluded that no substantial question of law arose.
Relevant Provisions:
Section 4(1)(a) of the Central Excise Act, 1944
“4. Valuation of excisable goods for purposes of charging of duty of excise. –
(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -
(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;
(b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
Explanation . - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.”
Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000
'8. Where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and ten per cent of the cost of production or manufacture of such goods.'
Section 11A of the Central Excise Act, 1944
“11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. -
(1) Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,-
(a) the Central Excise Officer shall, within 2 two years] from the relevant date, serve notice on the person chargeable with the duty which has not been so levied or paid or which has been so short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice;
(b) the person chargeable with duty may, before service of notice under clause (a), pay on the basis of,-
(i) his own ascertainment of such duty; or
(ii) the duty ascertained by the Central Excise Officer, the amount of duty along with interest payable thereon under section 11AA.
(Author can be reached at [email protected])