Interest Payable on Differential Duty Even if Paid Before Finalisation of Provisional Assessment: CESTAT [Read Order]
The adjudicating authority held the assessee liable for interest on the differential duty and appropriated the refund against such liability.
provisional-assessment - Taxscan
provisional-assessment - Taxscan
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore Bench, comprising P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member), has ruled that interest under Section 11AB of the Central Excise Act, 1944 is payable on differential duty even if such duty is paid before finalisation of provisional assessment under Rule 7(4) of the Central Excise Rules, 2002.
The appeal was filed by M/s ITI Ltd., Palakkad, manufacturer of telecommunication equipment, against the order of the Commissioner of Central Excise (Appeals), Cochin. The issue concerned the company’s liability to pay interest when differential duty was paid before finalisation of provisional assessment for the financial year 2001–02.
ITI Ltd. had sought provisional assessment owing to price escalation clauses in its contracts with the Department of Telecommunications (DOT). Upon finalisation, it was found that ITI had paid excess duty of ₹6,33,121. However, the department issued a show cause notice demanding interest of ₹68,07,274 under Section 11AB for differential duty payments and also proposed to deny part of the refund and credit the remaining amount to the Consumer Welfare Fund.
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The adjudicating authority held the assessee liable for interest on the differential duty and appropriated the refund against such liability. The Commissioner (Appeals) upheld this finding, prompting ITI Ltd. to file the present appeal before the Tribunal.
The appellant’s counsel, B.V. Kumar, argued that interest was not leviable as the company had voluntarily discharged the differential duty before finalisation of the provisional assessment. He relied on several Tribunal decisions, including Tata Motors Ltd. v. CCE, Pune-I [2008], CCE Bangalore v. Karnataka Vidyuth Karkhane Ltd. [2008], and CEAT Ltd. v. CCE, Nashik [2015], to contend that no interest arises where differential duty is paid prior to assessment finalisation.
He further submitted that ITI Ltd. was a sick industrial company under the purview of the Board for Industrial and Financial Reconstruction (BIFR), and hence, no coercive recovery measures, including interest demand, could be initiated.
The departmental representative, H. Jayathirtha (AR), maintained that interest liability arises statutorily from the date of clearance of goods, as held by the Allahabad High Court in Bharat Heavy Electricals Ltd. v. CC, Kanpur [2015], a view later upheld by the Supreme Court [2022].
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The CESTAT Bench examined Rule 7(4) of the Central Excise Rules, 2002, and noted that interest on differential duty is compensatory in nature, payable for the period between removal of goods and actual payment of duty. Relying on Bharat Heavy Electricals Ltd. (supra), the Tribunal held that the statutory scheme requires payment of interest on differential duty irrespective of whether it was paid before or after the finalisation of assessment.
Following the ratio of the Supreme Court decision in Bharat Heavy Electricals Ltd., the Tribunal dismissed the appeal filed by ITI Ltd., affirming that interest is payable even when differential duty is paid prior to finalisation of provisional assessment.
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