No Interest on Belated Excise Duty where Situation is Revenue-Neutral: Calcutta HC Upholds CESTAT Order in SAIL Case [Read Order]

The Calcutta High Court has upheld an order passed by the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), ruling that no interest is payable on belated payment of central excise duty where the situation is revenue-neutral.

The issue was based on valuation issues relating to excisable goods cleared by SAIL to its job workers for further processing. When the CESTAT favoured SAIL (Steel Authority of India Limited (SAIL), the department approached the high court.

Although duty demands running into over ₹15 crore were confirmed under Section 11A of the Central Excise Act, 1944, SAIL had already discharged the duty. The limited controversy that survived before the Tribunal pursuant to a remand by the Supreme Court was whether interest under Section 11AB could still be levied and whether SAIL was entitled to a refund.

The Revenue contended that once duty is paid belatedly, interest liability follows automatically as a compensatory measure, irrespective of revenue neutrality. It quoted Supreme Court decisions such as SKF India Ltd. and Steel Authority of India Ltd. v. CCE, Raipur and argued that interest is mandatory and cannot be waived merely because downstream units could avail Cenvat credit.

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SAIL, on the other hand, argued that the entire transaction was revenue-neutral, as the duty paid by it was fully available as Cenvat credit to its downstream conversion units. There was no net loss to the exchequer, and therefore, levy of interest would serve no compensatory purpose.

The Tribunal accepted this contention and held that while the duty demand had attained finality and refund was not admissible, interest was not payable in a revenue-neutral situation.

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Therefore, the Calcutta High Court, agreeing with the appellate tribunal, observed that the finding of revenue neutrality was a pure finding of fact, based on the availability of Cenvat credit to downstream units.

The Court held that interest, being compensatory in nature, presupposes a loss to the revenue. Where there is no pecuniary prejudice to the exchequer, insistence on interest would be not required.

The Bench of Justice Rajarshi Bharadwaj and Justice Uday Kumar noted that the Tribunal had carefully confined its relief only to the interest component while rejecting the assessee’s refund claim in view of the finality of the duty demand.

While dismissing the appeal filed by the Commissioner of Central Excise, Bolpur Commissionerate, the Court said that the Tribunal committed no error in setting aside the interest demand against Steel Authority of India Limited (SAIL).

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