Revenue-neutral inter-unit transfers defeat interest on differential duty where excess duty paid must be netted off against short payment.

Interest was held not payable on alleged differential duty arising from stock transfers of semi-finished goods to a sister unit in a revenue-neutral captive consumption arrangement. The Tribunal reasoned that where the recipient unit could avail CENVAT credit, the duty flow did not create a real revenue loss, and excess duty paid in other periods could not be ignored when determining the net liability. It further held that treating only the short payment, without adjusting excess duty already paid in the same transaction stream, would be inconsistent with Article 265. Authorities on delayed payment after price revision were distinguished. The interest demand was therefore unsustainable and the impugned order was set aside.

---

---

Issues: Whether interest was payable on differential duty arising from stock transfers to a sister unit in a revenue-neutral captive consumption arrangement, and whether excess duty paid in some periods had to be adjusted against short payment for determining any interest liability.

Analysis: The dispute concerned clearances of semi-finished goods to a sister unit, where duty was computed on valuation principles applicable to stock transfers. The liability was examined in the context of revenue neutrality, because the receiving unit was itself entitled to avail credit on the duty paid. In such a setting, ignoring excess duty paid and proceeding only on alleged short payment would create an unjustified retention of tax, contrary to Article 265 of the Constitution of India. The Tribunal also distinguished authorities dealing with delayed payment after price revision and held that those decisions did not govern a case involving inter-unit transfers and revenue-neutral consequences.

Conclusion: No interest was payable on the differential duty in the facts of the case, and the demand of interest was not sustainable against the appellant.

Final Conclusion: The appeal succeeded and the impugned order was set aside, with consequential relief as permissible in law.

Ratio Decidendi: Where duty paid on inter-unit transfers is revenue neutral because the recipient unit can avail credit, interest on alleged differential duty does not arise, particularly when excess duty paid in the same overall transaction stream cannot be ignored for determining the net liability.

---