2025 (8) TMI 929 - AT - Central Excise

Interest on disputed transit-loss duty not chargeable pre-11.05.2001 where duty paid within three-months under s.11AA/11A

Bharat Petroleum Corporation Limited Versus Commissioner of Central Excise Mumbai-II Commissionerate

CESTAT MUMBAI - AT allowed the appeal and set aside the order charging interest under section 11AB for the disputed transit-loss duty. The tribunal found ... Liability of appellant to pay interest u/s 11AB of the Central Excise Act, 1944, on the duty demanded on transit loss occurred in clearance of petroleum products from the refinery to the warehousing locations, without payment of duty, or otherwise, during the disputed period - interest u/s 11AB, during the part period 01.04.2000 to 10.05.2001 (out of the total disputed period of April, 2000 to October, 2002), when the same is not applicable on account of the amendment vide Finance Act, 2001 coming into force from 11.05.2001 and the lower authorities having dropped the penalty on the appellants - HELD THAT:- Section 11AA ibid, provide for payment of interest upon determination of duty by a Central Excise officer in terms of Section 11A ibid; and a period of 3 months have also been provided for payment of such duty determined. It is only in case where, the duty determined is not paid within the prescribed 3 months, then the question of charging interest arises at the prescribed rate. As regards Section 11AB ibid is concerned, prior to 11.05.2001, payment of interest from the due date was applicable only in cases, where the duty is determined on account of fraud, collusion or any wilful mis–statement or suppression of facts, or contravention of any of the provisions. However, subsequent to the amendment introduced through Finance Act, 2001, payment of interest in all cases was made applicable from the first day of the month succeeding the month in which the duty to have been paid under this Act. In the present case, the facts are not in dispute that the appellants had paid the duty demands confirmed by the original authority within the prescribed period of 3 months. Further, the authorities below during adjudication of the disputed demands have dropped the proposal for imposition of penalty on the appellants. The facts on record also show that the appellants have followed the procedure prescribed by the CBIC in transferring petroleum products from their refinery to the warehousing stations without payment of duty, and subsequently on clearance of such products from their warehouses, they had paid the applicable excise duty - the appellants having made the payment of short-paid duty, on account of transit loss to the extent it was above the permissible/condonable limit, within the prescribed period of three months, and as there is grounds of duty liability arising on account of fraud, collusion or wilful mis–statement or suppression of facts, or contravention of any legal provisions, there is no basis/reason for demanding interest on the demands confirmed by the authorities below. In an identical set of facts arising in the case of Indian Oil Corporation Limited Vs. Commissioner of Central Excise, Mumbai-II [2017 (10) TMI 656 - BOMBAY HIGH COURT], the Hon’ble Bombay High Court have delivered their judgement dated 18.09.2017, where they have upheld the order of the Tribunal and rejected the department’s appeal for demand of duty, interest and penalty on account of transit loss of petroleum products. The impugned order dated 18.06.2015 confirming the demand of interest on the appellants, is not legally sustainable - Appeal allowed in favour of the appellants. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether interest under Section 11AB of the Central Excise Act, 1944 is chargeable on duty determined under Section 11A in respect of transit losses of petroleum products removed to warehouses without payment of duty, when the assessee paid the duty within three months of determination. 2. Whether the post-11.05.2001 amendment to Section 11AB (Finance Act, 2001) - extending interest liability from the first day of the month succeeding the month in which duty ought to have been paid - applies to demands relating to periods (partly) prior to 11.05.2001. 3. Whether facts (procedure followed for warehouse removals, absence of fraud/ wilful suppression/contravention, and departmental allowance for permissible transit loss) preclude imposition of interest and penalty. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Interest under Section 11AB where duty was paid within three months Legal framework: Sections 11AA and 11AB (pre- and post-11.05.2001 versions) govern interest on delayed payment of duty determined under Section 11A. Section 11AA prescribes a three-month window from determination within which duty may be paid without attracting interest under that section; interest under Section 11AA applies only after expiry of that three-month period. Pre-11.05.2001 Section 11AB imposed interest from the first day of the month succeeding the month in which duty ought to have been paid only where duty shortfall resulted from fraud, collusion, wilful mis-statement/suppression or contravention; post-11.05.2001 Section 11AB broadened automatic interest application to all cases but carved out transitional protection for duties becoming payable before the Finance Bill, 2001 received assent. Precedent treatment: The Tribunal relied on an identical factual/ legal matrix decided by the High Court (which upheld Tribunal reasoning) and where the Supreme Court dismissed the department's SLP - treated as binding on the legal proposition in this factual context. The impugned authorities had earlier held there was no fraud/contravention and had dropped penalties. Interpretation and reasoning: The Court examined the plain language of Sections 11AA and 11AB and the sequence of events. Because the assessee paid the duty, as determined under Section 11A, within the three-month period envisaged by Section 11AA, interest under Section 11AA could not be levied. Further, the pre-amendment Section 11AB applied interest only in cases of fraud/collusion/ wilful mis-statement/suppression or contravention; since the adjudicating authorities found no such mala fides and penalties were dropped, Section 11AB could not be invoked for the disputed periods prior to amendment. For periods after the 2001 amendment, Section 11AB would operate differently but transitional savings prevent retrospective application where duty became payable before the Finance Bill, 2001 received assent (see Issue 2). The Court therefore concluded there was no legal basis to demand interest where duty had been paid within three months and there was no finding of fraud/contravention. Ratio vs. Obiter: Ratio - Where duty determined under Section 11A is paid within the three-month period contemplated by Section 11AA and no fraud/contravention is found, neither Section 11AA nor pre-amendment Section 11AB can be lawfully invoked to demand interest; consequent interest demands are unsustainable. Obiter - General observations on board circulars and departmental procedures regarding warehouse transfers and permissible percentage losses were explanatory to the issue but not necessary to the legal holding on interest. Conclusion: Interest demand under Section 11AB (and Section 11AA as applicable) is not sustainable where the assessee paid the duty within the three-month period and there is no finding of fraud, collusion, wilful mis-statement, suppression or contravention. Issue 2 - Applicability of Finance Act, 2001 amendment to demands covering pre-11.05.2001 periods Legal framework: Post-amendment Section 11AB (from 11.05.2001) made interest payable from the first day of the month succeeding the month when duty ought to have been paid, irrespective of fraud-type findings; sub-section (2) expressly excludes cases where duty had become payable or ought to have been paid before the Finance Bill, 2001 received assent. Precedent treatment: The Tribunal relied on the statutory transitional provision and on judicial decisions interpreting the temporal scope of the amendment; the High Court decision in a near identical fact situation was affirmed by dismissal of special leave by the Supreme Court, cementing the view that amendment does not apply retrospectively to demands which arose prior to the amendment's effective date. Interpretation and reasoning: The Court construed sub-section (2) as a clear legislative intent to shield demands where duty became payable before enactment of the Finance Bill, 2001. For the part of the disputed period prior to 11.05.2001, therefore, the broadened interest liability cannot be applied. For post-11.05.2001 periods, the amended provision would apply; however, the present factual matrix (payment within three months and absence of fraud/contravention) renders interest claim unsustainable even for post-amendment periods where Section 11AA's three-month rule was complied with. Ratio vs. Obiter: Ratio - The Finance Act, 2001 amendment to Section 11AB is not applicable to duty demands which had become payable before the date the Finance Bill, 2001 received presidential assent; transitional savings are operative. Obiter - Remarks on temporal operation of interest provisions outside the factual scope of the present record. Conclusion: The amendment by Finance Act, 2001 cannot be applied to demands in respect of periods where duty became payable before 11.05.2001; accordingly, interest under the amended Section 11AB cannot be retrospectively imposed for such periods. Issue 3 - Effect of following departmental warehouse transfer procedure and prescribed permissible transit loss on liability for interest and penalty Legal framework: CBEC/CBIC circulars and departmental procedures govern removals under warehousing bonds and prescribe mechanisms (warehousing certificates within 90 days, certification by consignee's officer, and specified permissible transit loss percentages) which, if adhered to, establish procedural compliance and reasonable expectation against allegations of contravention. Precedent treatment: The Tribunal and appellate authorities considered departmental circulars and judicial decisions acknowledging permissible transit loss percentages and the relevance of adherence to prescribed procedures in negating allegations of fraud or contravention. Interpretation and reasoning: The Court noted undisputed facts that the assessee adhered to the prescribed procedure for shipments under warehousing bond, produced warehousing certificates in time, and paid duty on clearance from warehouses. The authorities below had dropped penalty proposals, implicitly or expressly finding absence of fraud/intentional suppression. Given adherence to circulars and existence of prescribed permissible loss limits (e.g., 0.5-1% depending on product), shortages within those limits are condonable and do not attract duty/interest/penalty; shortages in excess were compensated by payment within the three-month window. Thus, procedural compliance and allowance for transit loss undermined any claim of contravention necessary to fasten Section 11AB interest in the pre-amendment period. Ratio vs. Obiter: Ratio - Compliance with statutory/board procedures for warehousing removals and payment of duty within prescribed time, together with departmental acceptance (dropping penalties), negate the requisite mens rea/contravention needed to impose interest under pre-amendment Section 11AB; permissible transit loss limits inform the quantum of duty payable but do not convert routine transit loss into fraud. Obiter - Observations regarding categorization of specific products and the precise percentage applicable (drawn from circulars and other cases) are contextual and not essential to the legal holding beyond this factual record. Conclusion: Adherence to prescribed warehousing procedures and payment of duty within three months, coupled with departmental finding of no fraud/contravention and recognition of permissible transit loss, precludes imposition of interest and penalty for the disputed periods. Overall Conclusion and Disposition The Court concluded that the impugned order confirming interest under Section 11AB is unsustainable on law and fact: (i) duty was paid within three months as per Section 11AA; (ii) no finding of fraud/ collusion/ wilful mis-statement/ suppression or contravention justified Section 11AB pre-amendment application; and (iii) the Finance Act, 2001 amendment cannot be applied to demands in respect of duties payable before 11.05.2001. Accordingly, the interest demands were set aside and the appeal allowed. (Ratio forms the binding holding; ancillary commentary on circulars and product-specific loss percentages is explanatory/obiter.)