2023 (9) TMI 915 - AT - Central Excise

Tribunal rules no interest on Central Excise duty in revenue neutral scenario

In Excise Appeal No. 396 of 2006, the Tribunal ruled that in a revenue neutral scenario where duty paid is eligible as cenvat credit, no interest is ... Payment of interest on Central Excise duty - revenue neutrality - HELD THAT:- It is an admitted fact that it is a case of revenue neutrality, which means whatever duty has been paid by the appellant and the same is entitled as cenvat credit to the appellants themselves. As it is a revenue neutral situation, it is held that no interest is payable by the appellant as held by this Tribunal in the case of M/S. JAI BALAJI INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, BOLPUR [2023 (6) TMI 1102 - CESTAT KOLKATA] wherein it has been held that we hold that it is the revenue neutral situation, no duty is payable by the appellant therefore whatever duty paid by the appellant Cenvat credit of the same has been availed by the sister unit, question of payment of interest does not arise. Thus, no interest is payable by the appellant as it is a revenue neutral situation. Accordingly, the demand of interest is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether interest is payable on a confirmed demand of Central Excise duty where the transaction is held to be revenue neutral (duty paid was available as Cenvat credit to the assessee or related unit). 2. Whether a refund claim for duty recovered pursuant to an adjudication order is maintainable where (a) the appeal against the duty was earlier dismissed as non-maintainable following Committee of Disputes (COD) clearance and (b) the order confirming duty was not subsequently challenged on the maintainability point. ISSUE-WISE DETAILED ANALYSIS - Interest in Revenue-Neutral Situations Legal framework: Under Central Excise law, interest is ordinarily payable on delayed payment of excise duty. Valuation rules at issue: Rule 4 and Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 r/w Section 4(1)(b) of the Central Excise Act, 1944 - relevant to computation of assessable value for clearances to job-workers. The question is whether the statutory entitlement to interest survives where duty, though later demanded, results in no net revenue because the same amount could be or was taken as Cenvat credit by the assessee or a related unit. Precedent treatment: The Tribunal relied on and followed prior decisions holding that where the duty demand is revenue neutral (e.g., paid but allowed as Cenvat credit to the same or sister unit), interest does not arise - these include Tribunal and High Court decisions recognizing revenue neutrality as negating the obligation to pay interest. Decisions cited by Revenue that address different factual matrices (e.g., whether revenue neutrality exists) were distinguished as not on point. Interpretation and reasoning: The Court accepted the admitted factual premise of revenue neutrality - the duty paid was available as Cenvat credit to the appellant (or sister unit), producing no net accrual to the revenue. The Tribunal reasoned that interest is consequential on the obligation to pay duty which results in a loss of use of revenue by the State; where duty payment does not effect a net gain to the exchequer because of simultaneous credit/neutralization, interest cannot be levied. The Tribunal rejected reliance on authorities where the factual question of revenue neutrality was unresolved or where the issue before those courts was different (e.g., whether the duty itself was payable or whether refund of interest on service tax was due). Ratio vs. Obiter: Ratio - where a confirmed demand of duty is revenue neutral because the duty paid was available as Cenvat credit to the same or related unit, no interest is payable on that demand. Obiter - observations distinguishing other cases addressing different factual questions (e.g., whether revenue neutrality existed) and discussion of Committee of Disputes' functions insofar as they relate to litigation clearance were explanatory rather than forming the core holding on interest. Conclusion: Interest on the confirmed duty demand for the period in question is set aside because the Tribunal found a revenue-neutral situation; accordingly, no interest is payable. ISSUE-WISE DETAILED ANALYSIS - Maintainability of Refund Claim after COD Clearance and Tribunal Order Legal framework: Principles on finality of adjudication and appellate orders, and the effect of COD clearance (Committee of Disputes) - COD clearance can limit the right to litigate specified aspects; when an appellate forum dismisses an appeal as non-maintainable pursuant to COD directions, that part of the adjudication may attain finality unless separately challenged. Precedent treatment: The Tribunal reviewed its earlier order which, interpreting COD clearance, had dismissed appeals relating to duty demands as non-maintainable while permitting litigation on penalty. The present bench treated that Tribunal order as final and binding because the aspect of the duty demand was not further challenged by the appellant. Interpretation and reasoning: The Court examined the COD resolution and the Tribunal's subsequent order which dismissed the appeal against duty demand as non-maintainable. The appellant argued that COD's conciliation meant the demand was not recoverable and that recovery effected by the department was contrary to the COD resolution; counsel contended that this preserved a right to refund. The Tribunal rejected that contention: since the appeal on duty was dismissed as non-maintainable and that part of the Tribunal's order was not appealed, the adjudication confirming duty became final as against the appellant for purposes of recovery and refund claims. The Tribunal held that the COD resolution did not operate to nullify the adjudication in a manner that would permit a later maintainable refund claim where the appellate remedy on the point had been allowed to lapse. Ratio vs. Obiter: Ratio - where an appeal against a duty demand is dismissed as non-maintainable pursuant to COD clearance and that dismissal is not challenged, the adjudication confirming duty attains finality for purposes of refund claims; consequently refund claims against amounts recovered cannot be maintained. Obiter - commentary on the intended function of COD conciliations (that COD may aim at conciliation rather than outright confirmation or enforcement) but that such conciliatory outcomes do not override the finality of an unchallenged appellate dismissal. Conclusion: The refund claims for the amount recovered pursuant to the confirmed adjudication were rejected as not maintainable because the Tribunal's earlier order dismissing appeals against duty demand as non-maintainable (pursuant to COD clearance) was not challenged; therefore the impugned order confirming non-allowance of refund was upheld and the appeal dismissed. Cross-References and Interplay Between Issues 1. The decision on interest is fact-specific and premised on admitted revenue neutrality; that reasoning did not affect the separate conclusion that refund claims were barred by finality resulting from an earlier unchallenged appellate dismissal under COD clearance. The two outcomes operate independently: interest was set aside because of revenue neutrality, while refund claims were dismissed because the duty confirmation had attained finality by virtue of the unappealed Tribunal order. 2. Authorities cited by both sides were examined for factual alignment; where prior decisions involved the same legal principle applied to revenue-neutral facts, they were followed; where prior decisions addressed different factual questions (e.g., whether the demand itself was payable or whether COD effects prevented recovery), those were distinguished and not followed as dispositive.