M/S Bharat Heavy Electricals Ltd. vs Commissioner C& C Excise Kanpur
2015 Latest Caselaw 1932 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 
Reserved
 

 
Central Excise Appeal No.26 of 2015
 

 
M/s Bharat Heavy Electricals Ltd.		       ........   Appellants
 

 
Vs.
 

 
Commissioner C & C Excise, Kanpur	       .........  Respondent
 

 
******************
 

 
Hon'ble Tarun Agarwala, J.

Hon'ble Surya Prakash Kesarwani, J.

(Per: Tarun Agarwala, J.)

(Delivered on 21st August, 2015)

The appellant is a Government of India public sector undertaking incorporated under the Companies Act, 1956 and is engaged in design, manufacture and supply of power and instrument transformers, bus ducts and AC/DC Loco to the Indian Railways and other public and private sectors. The appellant has executed an agreement with the Indian Railways for supply of electrics wherein the price of the product supplied by the appellant is not settled in advance at the time of placement of the order but is determined ex-post supply by the Railway Board based on the recommendation of the Chief Advisor (Cost), Ministry of Finance.

At the time of despatch of the goods, a provisional assessment is raised wherein central excise duty is provisionally paid in accordance with the provisional assessment order under Rule 7 of the Central Excise Rules, 2002 (hereinafter referred to as the Rules) issued by the Assistant Commissioner, Central Excise. It is contended that immediately on the approval of the final price, adjustment bills on differential duty, if any, is raised and paid or a refund claim is lodged depending on the price which is fixed. The final assessment is passed thereafter by the excise authorities.

For the period 2007-08 and 2008-09, the appellant cleared excisable goods on payment of duty as per the order under Rule 7(1) of the Rules on provisionally assessed value. After the finalisation of the prices, the appellant raised invoices and paid the differential rate of duty and submitted the relevant documents for finalisation of the provisional assessments. It is alleged that the jurisdictional authority, without affording any opportunity, passed the final assessment order holding that even though no further duty was payable but held that the appellant was liable to pay interest on the differential duty under Section 11AB of the Central Excise Act, 1944 (hereinafter referred to as the Act). The appellant, being aggrieved filed an appeal, which was dismissed against which further appeal was filed before the Tribunal. The Tribunal after considering the matter dismissed the appeal. The appellant, still aggrieved, has filed the present appeal.

We have heard Sri Z.U. Alvi along with Sri A.P. Mathur and Sri Abhishek Mishra, the learned counsel for the appellant and Sri Amit Mahajan, the learned counsel for the department.

The question of law that arises for consideration is, "Whether the appellant is liable to pay interest on differential duty even though the differential duty, if any, was paid, prior to the date of the passing of the final assessment order."

The learned counsel for the appellant contended that duty is only payable when it is levied. The duty is levied and finalised only at the time when a final assessment order is passed and, prior to the date of finalisation of the assessment order, the differential duty, if any, had already been cleared and paid by the appellant. The learned counsel contended that there was no differential duty payable at the time when the final assessment order was passed and, consequently, imposition of interest on differential duty was bad in law. In support of his contention, the learned counsel submitted that levy of interest is compensatory in nature and that interest is levied when duty assessed is not paid within a stipulated period. The learned counsel contended that collection of duty is subject to assessment and that Section 4 of the Act, which relates to duty of excise chargeable at the stage of removal of goods is subject to the provision of Section 3 of the Act, which requires the goods to be levied in such manner as may be prescribed. It was contended that until and unless the duty was levied, the question of payment of duty at the time of removal of goods did not arise. The learned counsel, consequently, contended that Section 4 of the Act will not override the provision of Section 3 of the Act.

Sri Alvi, the learned counsel contended that the charge of interest would be attracted where the amount of duty is either not paid or short paid as on the date on which such payment was legally due. According to him, the crucial test for levy of interest would be the point of time the revenue was entitled legally to collect the amount of duty as determined under Section 3 of the Act. The learned counsel contended that in the facts and circumstances of the instant case, the provision of Section 11A was not applicable.

The learned counsel placed reliance upon a decision of the Supreme Court in Assistant Collector of Central Excise, Calcutta Vs. National Tobacco Company of India Ltd., 1978 (2) ELT 416 wherein it was held that the term "levy" seems wider that that of "assessment", yet it does not seem to extend collection. The Supreme Court further held that Article 265 of the Constitution makes a distinction between levy of collection. The learned counsel relied upon the observation made in paragraph 21 to indicate that the process of assessment really determines whether the levy is short and complete, consequently, contended that duty becomes payable only when there is a final assessment and if duty has already been paid on or before the date of final assessment, the question of paying interest on differential right of duty does not arise. In support of his submission, the learned counsel placed reliance upon a decision of the Supreme Court in Commissioner of Central Excise and Customs, Mumbai Vs. I.T.C. Ltd., 2006 (203) ELT 532 wherein it was held that the question as to non-levy or short levy of an excise duty would arise only when the levy had been laid in accordance with law. It was contended that when the duty is levied it becomes payable, which in turn becomes legally recoverable. It was contended that the amount becomes payable only in the event, the assessee does not deposit the amount levied as per the order of assessment.

In the light of the aforesaid decision, the learned counsel contended that the power under Section 11A of the Act could be invoked only when a duty is not levied or paid or has been short levied or short paid and that such proceedings could be initiated within six months from the relevant date in terms of sub-section 3(3)(iib) of Section 11A of the Act in a case where duty of excise is provisionally assessed under the Act or the Rules made thereunder and the date of adjustment of duty after the final assessment thereon. It was contended that proceedings under Section 11A of the Act could not be initiated without the completion of the assessment proceedings. The learned counsel contended that only after a final assessment order is passed that the duty has to be paid by the assessee on the basis of the final assessment and if the duties are not paid within the specified period, the excise authorities was empowered to initiate proceedings under Section 11A within the period of limitation. The learned counsel contended that in the instant case, all duties has been paid prior to the date of the final assessment and, therefore, no interest could be chargeable. In support of his submission, the learned counsel has also placed reliance in Commissioner of Central Excise, Nagpur Vs. Ispat Industries Ltd., 2010 (259) ELT 662, wherein the Bombay High Court held that interest is payable on the differential duty but where the differential duty was paid prior to the final assessment, no interest was payable on such differential duty. The learned counsel also placed reliance on a decision of CEAT Limited Vs. Commissioner of Central Excise and Customs, Nashik, 2015 (317) ELT 192, wherein the Bombay High Court High Court held that the liability to pay interest does not arise unless the finalisation of the assessment results in any additional or differential liability. The Bombay High Court held that once the assessment is finalised interest becomes leviable but where differential duty was paid prior to the finalisation of the assessment then no interest is payable.

On the other hand, Sri Amit Mahajan, the learned counsel for the appellant submitted that interest has been levied in terms of Rule 7(4) of the Rules, which has been framed in exercise of the powers conferred under Section 37 of the Act. In support of his submission, the learned counsel placed reliance upon a decision in Commissioner of Central Excise, Pune Vs. SKF India Ltd., 2009 (239) ELT 385 wherein the Supreme Court held:

"We are unable to subscribe to the view taken by the High Court. It is to be noted that: the assessee as able to demand from its customers the balance of the higher prices by virtue of retrospective revision of the prices. It, therefore, follows that at the time of sale the goods carried a higher value and those were cleared on short payment of duty. The differential duty was paid only later when the assessee issued supplementary invoices to its customers demanding the balance amounts. Seen thus it was clearly a case of short payment of duty though indeed completely unintended and without any element of deceit etc. The payment of differential duty thus clearly came under sub-section (2B) of Section 11A and attracted levy of interest under Section 11AB of the Act."

The learned counsel also relied upon a decision in Commissioner of Central Excise Vs. International Auto, 2010 (250) ELT 3, wherein the Supreme Court held that from the scheme of Section 11A (iib) and Section 11B it is apparently clear that interest is levied for loss of revenue on any count. The Supreme Court held that the differential price signifies that value, which is the function of the price, on the date of removal/clearance of the goods. The Supreme Court held that the differential duty paid after the date of clearance, indicates short payment/ short levy on the date of removal hence interest, which is for the loss of revenue, becomes leviable.

The learned counsel placed reliance upon a decision in the appellant's own case in Bharat Heavy Electricals Limited Vs. Commissioner of Central Excise, Bhopal, 2012 (275) ELT 614, wherein the Tribunal held that even if the differential rate of duty was cleared before the finalisation of the provisional assessment, nonetheless, interest was liable to be paid on the differential amount. The learned counsel further relied upon a decision of the Madras High Court in Alstom T & D India Ltd. Vs. CESTAT, Chennai, 2015 (316) ELT 362.

In the light of the submissions made by the learned counsel for the parties, we find that Article 265 of the Constitution of India provides that no tax shall be levied or collected except by an authority of law. Section 3(1) of the Act provides that there shall be levied and collected in such manner as may be prescribed a duty of excise, etc.

There is no doubt that interest is compensatory in nature and is imposed on an assessed amount who has with held any tax as and when it was due and payable. Levy of interest is on actual amount of tax withheld and the extent of the delay in paying the tax on the due date as held by the Supreme Court in Pratibha Processors Vs. Union of India, 1996 (88) ELT 12.

We find that Section 3(1) of the Act is the charging section, which uses the words "levied and collected". These are the same words as used under Article 265 of the Constitution, which has been interpreted as comprehending the entire process of taxation commencing from the imposition of the tax by enacting a statute to the actual taking away of the money. The words "levied" is a wide and generic expression and is of wide import and takes in all the stages of charge, quantification and recovery of duty though in certain context it may have a restricted meaning.

The Supreme Court in Ujagar Prints Vs. Union of India, 1988 (38) ELT 535 held that the word "levied" means charged as well as assessed. The Supreme Court in Commissioner of Central Excise, Pondichery Vs. Acer India Ltd., 2004 (172) ELT 289 further held that Section 4 of the Central Excise Act, which relates to chargeable of duty at the point of removal of goods cannot override the charging provision, namely, Section 3 of the Act.

In our view, there is no quarrel with the aforesaid proposition of law. We however, have to refer to certain provisions of Central Excise Rules, 2002, which have been framed in exercise of the powers conferred by Section 37 of the Central Excise Act, 1944. For facility, Section 37(1) (ibb) of the Act provides as under:-

"Section 37. Power of Central Government to make rules. - (1) The Central Government may make rules to carry into effect the purposes of this Act.

........

(ibb) provide for charging or payment of interest on the differential amount of duty which becomes payable or refundable upon finalisation of all or any class of provisional assessments."

The aforesaid provision clearly provides that the Central Government may make rules including rules conferring powers to provide for charging of interest on the differential amount of duty, which becomes payable or refundable upon finalisation of all or any class of provisional assessment. The provision of law comprised thereunder nowhere specifies such Rules shall restrict the levy of interest for the period consequent to the finalisation of the assessment, rather it specifies that the Rules may provide for interest on the differential amount of duty becoming payable consequent upon the finalisation of assessment. The expression "becoming payable" would obviously relate to the date on which the duty was required to be paid. Considering the provisions of Section 4 of the said Act, the duty becomes payable at the time of the removal of the goods consequent to the manufacture thereof. The expression "becomes payable" under Section 37(2)(ibb) would relate to the date on which the duty was payable i.e. at the time of clearance of the goods in terms of the said Act. Merely because the differential amount of duty is ascertained consequent to the finalisation of assessment, the due date for payment of such amount never changes nor is extended. It would always relate to the date of removal of the goods thereof. It is only the quantification of the differential amount of duty is ascertained consequent to the finalisation of assessment, and that too merely because the assessee was not able to ascertain the exact quantum of duty in the absence of sufficient material to finalize the valuation of the goods at the time of clearance of goods. The due date for payment of duty is statutorily fixed being the date of removal of the goods consequent to the manufacture thereof and the same cannot be changed.

Further, Rule 7(4) clearly provides that the assessee shall be liable to pay interest on any amount payable to the Central Government consequent to an order being passed for finalisation of assessment under sub-rule (3) at the rate specified by the Central Government by a Notification issued under Section 11AA or Section 11AB of the said Act from the first day of the month succeeding the month for which such amount is determined till the date of payment thereof. The provisions therefore, specifically states that the interest liability will commence from the month succeeding the month "for" which such amount is determined. The expression "for" refers to the month for which the amount is determined pursuant to finalisation of assessment. Apparently, it discloses that the interest liability would commence from the month succeeding the day on which the duty was due and payable in relation to the goods cleared.

Based on Section 37(2)(ibb), the Rules was framed. Rule 6 of the Rules provided a mode for assessment of duty wherein the assessee himself assessed the duty payable on any excisable goods. Rule 7 of the Rules provided that where the assessee was unable to determine the value excisable goods he may request the Assistant Commissioner or Deputy Commissioner as the case may be for payment of duty on a provisional basis. Provisional assessment order would be passed under sub-Rule (2 )of Rule 7 of the Rules and, thereafter, a final assessment order would be passed under sub-Rule (3). Sub-Rule (4) provides for payment of interest consequent to order for final assessment under sub-Rule (3) at the rate specified from the first day of the month succeeding the month for which such amount is determined till date date of payment thereof. For facility, Rule 7 is extracted hereunder:

"Rule 7. Provisional assessment. -- (1) Where the assessee is unable to determine the value of excisable goods or determine the rate of duty applicable thereto, he may request the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, in writing giving reasons for payment of duty on provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, may order allowing payment of duty on provisional basis at such rate or on such value as may be specified by him.

(2) The payment of duty on provisional basis may be allowed, if the assessee executes a bond in the form prescribed by notification by the Board with such surety or security in such amount as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, deem fit, binding the assessee for payment of difference between the amount of duty as may be finally assessed and the amount of duty provisionally assessed.

(3) The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall pass order for final assessment, as soon as may be, after the relevant information, as may be required for finalizing the assessment, is available, but within a period not exceeding six months from the date of the communication of the order issued under sub-rule (1) :

Provided that the period specified in this sub-rule may, on sufficient cause being shown and the reasons to be recorded in writing, be extended by the Commissioner of Central Excise for a further period not exceeding six months and by the Chief Commissioner of Central Excise for such further period as he may deem fit.

(4) The assessee shall be liable to pay interest on any amount payable to Central Government, consequent to order for final assessment under sub-rule (3), at the rate specified by the Central Government by notification issued under section 11AA or section 11AB of the Act from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof.

(5) Where the assessee is entitled to a refund consequent to order for final assessment under sub-rule (3), subject to sub-rule (6), there shall be paid an interest on such refund at the rate specified by the Central Government by notification issued under section 11BB of the Act from the first day of the month succeeding the month for which such refund is determined, till the date of refund.

(6) Any amount of refund determined under sub-rule (3) shall be credited to the Fund :

Provided that the amount of refund, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to -

 
(a)	the duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person; or
 
(b)    the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person."
 
	In SKF India Ltd. (supra) the Supreme Court held :
 
	"The payment of differential duty by the assessee at the time of issuance of supplementary invoices to the customers demanding the balance of the revised prices clearly falls under the provision of sub-section (2B) of Section 11A of the Act."
 
	Similarly, in International Auto Ltd. (supra) the Supreme Court held that merely because the differential amount of duty was ascertained subsequent to the date of clearance, the due date of payment of duty never changed nor was it extended and that the differential rate of duty is relatable to the date of removal of goods.
 
	The expression "for" as provided under Rule 7(4) of the Rules of 2002 refers to the month for which the amount is determined pursuant to the finalisation of assessment and hence, interest liability would commence from the month succeeding the month for which the duty was due and payable in relation to the goods cleared.
 
	In the light of the aforesaid, we are of the view that interest is leviable even where differential duty was paid prior to the finalisation of the assessment in view of Rule 7(4) of the Rules of 2002. With great respect, we disagree with the decisions of the Bombay High Court in the case of Ispat Industries Ltd. (supra) and in the case of CEAT Ltd. (supra).
 
	In the light of the aforesaid, the appeal fails and is dismissed. The question of law is answered accordingly.
 
Date:21.8.2015
 
Bhaskar  
 

 
(Surya Prakash Kesarwani, J.)        (Tarun Agarwala, J.)