No Interest On Excise Duty Payable In Revenue-Neutral Situation Even Though Duty Demand Attained Finality: Calcutta High Court

Justices Rajarshi Bharadwaj and Uday Kumar stated that the Tribunal has 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.

In the case at hand, assessee/respondent manufactures iron and steel products which are cleared to various conversion units on stock transfer basis for further processing after payment of central excise duty at the applicable rates (16%, 8% and 12% during the relevant period) and education cess as introduced with effect from July 09, 2004.

During the relevant period after July 01, 2000, when the amended Section 4 and the Valuation Rules, 2000 came into force, the assessee not only cleared goods to job workers but also sold identical goods to independent buyers at its factory gate and thus all clearances were not captively consumed.

In such circumstances, the department took the position that Rule 8 of the Valuation Rules, 2000, which applies where the manufacturer uses all the goods for captive consumption by itself or on its behalf, was inapplicable.

Also, that, there being no specific rule squarely covering the situation, Rule 11 (the residuary rule) read with Section 4(1)(a) must be applied so that the value of goods cleared to job workers is determined on the basis of the transaction value of similar goods sold to independent buyers at the factory gate.

A show cause notice was issued to the assessee proposing recovery of short-paid duty under Section 11A of the Act, together with interest under Section 11AB and penalty under Section 11AC.

The adjudicating authority 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 the Central Excise Rules, 1944 and Rule 25 of the Central Excise Rules, 2001/2002.

The assessee filed an appeal before the Tribunal. 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.

Thereafter, the assessee filed a refund claim for Rs.15,66,48,547/- on various grounds which was rejected.

The Assistant Commissioner, rejected the refund on the ground that the duty demand under the order-in-original had attained finality and could not be indirectly assailed through a refund proceeding.

The Commissioner (Appeals), upheld the rejection. Against the said appellate order, the assessee filed Excise Appeal before the Tribunal.

The revenue submitted that the Tribunal has committed a manifest error of law in setting aside the interest imposed under Section 11AB of the Central Excise Act, 1944 when the respondent/assessee has admittedly discharged the duty demand under Section 11A and that demand has attained finality.

The bench opined that the Tribunal's view 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.

The bench stated that the Tribunal also found that the assessee was not entitled to refund of the duty already paid, having regard to the finality of the order-in-original and the statutory scheme of Section 11B.

In view of the above, the bench dismissed the appeal.

Case Title: Commissioner of Central Excise Bolpur Commissionerate v. M/s. Steel Authority of India Limited

Case Number: CEXA 31 OF 2024

Counsel for Appellant/Department: Uday Sankar Bhattacharjee and Tapan Bhanja

Counsel for Respondent/Assessee: Rahul Tangri

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