Interest Mandatory on Amounts Payable under Provisional Assessment but Not Paid on Due Date: CESTAT in BHEL Case [Read Order]
CESTAT held that BHEL must pay interest on differential duty under provisional assessment, even if deposited before finalisation, as the liability dates back to removal
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that interest is mandatory on amounts payable under provisional assessment but not paid on the due date, even if the differential duty was deposited before finalisation.
Bharat Heavy Electricals Ltd. (BHEL) had sought a provisional assessment of excisable goods supplied to customers other than Indian Railways, since its contracts carried a price variation clause that could increase or reduce the final price. Between April 2012 and June 2017, BHEL deposited a differential duty of Rs. 22.97 crore before the final assessment was completed.
When the assessment was finalised in July 2023, the department demanded interest of Rs. 3.53 crore on the differential duty under Rule 7(4) of the Central Excise Rules, 2002, read with Section 11AA/11AB of the Central Excise Act, 1944. The Commissioner (Appeals) upheld this demand, and BHEL appealed to the tribunal.
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The appellant’s counsel argued that no interest was payable because the duty had been deposited before finalisation. They relied on rulings such as CEAT Ltd. v. CCE decided by the Bombay High Court and affirmed by the Supreme Court, where it was held that interest cannot be imposed when the duty is paid in advance.
They also referred to tribunal rulings in Ispat Industries Ltd. and Tata Motors Ltd. to support their claim.
The revenue counsel countered that the Supreme Court in Steel Authority of India Ltd. v. CCE, Raipur had already settled the issue, holding that in cases of retrospective price escalation, the liability to pay duty relates back to the date of clearance and interest is payable.
They explained that since the appellant’s contracts clearly contained a price variation clause, the assessee was aware that duty liability could arise later.
The two-member bench comprising Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) observed that the later Supreme Court ruling in SAIL was binding. They observed that because the contracts included a price variation clause, the liability for differential duty related back to the date of removal, and interest was chargeable under the law.
The tribunal explained that the argument that advance payment of duty shields the assessee from interest was not sustainable in light of the binding Supreme Court ruling. It upheld the Commissioner (Appeals)’ order and dismissed BHEL’s appeals.
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