2011 (10) TMI 201 - HC - Central Excise

Appeal allowed: Rule 7(4) interest cannot be levied without netting provisional excess payments against shortfalls across goods

TOYOTA KIRLOSKAR AUTO PARTS PVT LTD Versus COMMISSIONER OF CENTRAL EXCISE, BANGALORE

HC allowed the appeal and set aside all impugned orders, holding that interest under Rule 7(4) cannot be levied without netting provisional excess ... Demand of interest under rule 7(4) based on the final assessment after a provisional assessment - Assessee dealing in two categories of goods - With respect to certain items, the provisional value adopted was less than the final value arrived and resulted in short payment of duty of Rs.10,63,41 however in respect of other item provisional value has resulted in excess payment of Rs 1,77,20,157 thus net excess of 1,66,56,740. Department demanded interest of Rs 1,34,634 on short payment of Rs.10,63,41 - Held that:- 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. Admittedly for certain items the Adjudicating 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 assessee has paid Rs.1,77,20,157/- in excess. But before imposing interest, the authority should have deducted the short fall in the excess payment made. If there is no short fall in payment of duty, payment of interest does not arise, They have treated the duty payable under two categories. It was found in respect of some items the duty payable after the final order is more than what was paid under provisional assessment. The approach of the authorities in this regard is erroneous, unwarranted and unsupported by any statutory provision. If we keep in mind the principle underlying the provisions, it is only when the duty is due and it is not paid within the stipulated time and the duty is paid thereafter, in order to compensate the revenue, interest is imposed. If that is to be kept in mind, in the instant case, when the assessee has paid a sum of Rs.1,66,56,740/- excess duty which is entitled to claim refund, he cannot be taxed with payment of excess duty in the form of interest. The entire approach of the department is unreasonable, contrary to the scheme of the Act and negatives the principle underlying these provisions. Therefore, all the authorities were in error in levying and upholding the levy of interest. The Appeal is allowed. The impugned order passed by all the authorities are hereby set aside. Issues:Challenge to levy of interest on the assessee based on final assessment after provisional assessment.Analysis:The case involved the assessee, a manufacturer of motor vehicle parts, challenging the levy of interest by the Tribunal based on the final assessment after a provisional assessment. The assessee and the major buyer were interconnected undertakings. The assessee requested provisional assessment for the financial year 2007-08, which was finalized based on the Cost Accountant's certificate. The final assessment resulted in a short payment of duty for certain items, leading to a demand for interest under Rule 7 of the Central Excise Rules, 2002. The assessee contended that they had actually paid an excess duty, not a short payment, and thus interest should not be levied. Despite the contention, the Commissioner of Appeals and the Tribunal upheld the interest levy, prompting the assessee to appeal to the High Court.The High Court analyzed Rule 7 of the Central Excise Rules, which allows for provisional assessment when the value of goods or duty rate is uncertain. The rule outlines the process for final assessment and the consequences of short payment or excess payment of duty. The Court emphasized that interest is payable only if there is a short payment after final assessment. In this case, the Adjudicating Authority found a short payment for certain items but failed to account for the excess payment made by the assessee for other items. The Court criticized this approach, stating that interest should not be imposed when the assessee has already paid an excess duty that is refundable. The Court deemed the authorities' actions as erroneous, contrary to the Act's scheme, and lacking statutory support. Consequently, the High Court allowed the appeal, setting aside the orders of all authorities and ruling in favor of the assessee, concluding that interest should not be levied.