Liability to Pay Interest on duties Short-paid on Clearance of Goods does not get erased by payment of differential duty, Recovery Order u/s 11 A is valid: CESTAT [Read Order]

The Mumbai bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that Liability to pay interest on duties short-paid on clearance of goods does not get erased by payment of differential duty and recovery order under section 11 A of Central Excise Act,1944 is valid.

Shri R G Sheth, Advocate appeared for the appellant and Ms Anuradha S Parab appeared for the respondent

M/s HH Patel & Company challenged the order of Commissioner of Central Excise & Customs, Nashik which confirmed the recovery of ₹ 26,80,492 under section 11A of the Central Excise Act, 1944 along with applicable interest.

The appellant is in the business of manufacturing ‘loose zarda’, by deploying raw materials in specific proportions to obtain batches of 3165 kg, and had been clearing the same to their branches upon discharge of duties of central excise on cost for the period from April 1997 to December 2001 which the jurisdictional authority had held to have been incorrectly computed after exclusion of certain essential elements.

The impugned order held that the value computed at ₹ 32 per kg for the period from 25th April 2001 to 29th October 2001, and at ₹ 36 per kg for the period thereafter till 31st December 2001, instead of ₹ 42.34 per kg in the revised CAS-4 prepared by the cost accountant of the appellant resulted in short-payment of duty which is not in dispute. The grievance of the appellant stems from the claim that the provision for charging interest under section 11AB of the Central Excise Act, 1944 is triggered only when suppression, fraud or misrepresentation has caused evasion of duty.

It was contended by the appellant that ‘revenue neutrality’ by way of credit having immunized assessees from demand, as held by the Supreme Court in Commissioner of Central Excise, Pune v. Coca-Cola India Pvt Ltd and Commissioner of Customs & Central Excise v. Textile Corporation Marathwada Ltd . Section 11AB of Central Excise Act, 1944 was also clearly not applicable.

It was established that arising from the liability for duties of central excise devolving on the assessee at the price existing at the time of clearance, notwithstanding subsequent receipt of differential, interest under section 11AB of Central Excise Act, 1944 would have to be discharged for termination of proceedings under section 11A of Central Excise Act, 1944.

On the other hand, in re Bharat Heavy Electricals Ltd, it was held that section 11AB of Central Excise Act, 1944 could not be invoked independently of section 11A of Central Excise Act, 1944 rendered superfluous owing to prompt discharge of tax liability on an escalation of price.

 The Tribunal Coram comprising of C J Mathew, Member (Technical) and Mr Ajay Sharma, Member (Judicial)  held that “the liability to pay interest on duties short-paid at the time of clearance of goods for captive consumption does not get erased. The interest liability had not been discharged at the time of payment of differential duty and, hence, the essential precondition for the dropping of further proceedings had not been complied with.”

While dismissing the appeal filed by the assessee, the Tribunal held that “ the confirmation of differential duty necessarily has interest liability appended to it.”

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