2015 (12) TMI 1641 - CGOVT - Central Excise

Classification - Rebate - Interest - Diesel engines or centrifugal pumps - Held that - it is observed that while a diesel engine is a compression ignition engine or an internal combustion engine, a centrifugal pump is a pump, driven by a motor/turbine such as an internal combustion engine, for moving liquids such as water. The centrifugal pumps are, as per HSN Explanatory Notes, appropriately classifiable under Tariff Heading 8413 70 - The diesel engines are employed in the composite machines viz. diesel engine driven centrifugal pumps, only to power drive the machine, i.e., centrifugal pumps. Such machines are, therefore, appropriately classifiable under Tariff Heading 8413 70 19 and not 8408 90 90 of the Tariff. On the issue relating to whether interest is recoverable from the applicant on the rebate paid erroneously to them, Government observes that recoveries of duties not levied or not paid and interest thereof are governed by Section 11A and Section 11AB (now Section 11AA) of Central Excise Act, 1944 - If taxes have been erroneously refunded upon export, they are required to be paid back to the exchequer in the same form as they were received. Further retention of amounts not due to them lawfully has placed the amount in the hands of the applicant and the exchequer must be compensated for such deprivation due to cash rebate taken incorrectly by the applicant. The Commissioner (Appeals) has therefore, erred in holding that no interest is chargeable under Section 11AA ibid on the amount erroneously refunded to the applicant. Cash rebate of the excess amount paid was clearly not payable to them and has been allowed as recredit in their Cenvat credit account by the Commissioner (Appeals) relying upon the view taken by the Hon ble Punjab and Haryana High Court in Nahar Industrial Enterprises Ltd. v. UOI reported in 2009 2008 (9) TMI 176 - PUNJAB AND HARYANA HIGH COURT - Revision application are disposed of.

Summary

Issues Involved:
1. Classification of exported goods.
2. Recovery of excess rebate and interest on erroneous refund.
3. Authority of Commissioner (Appeals) to decide on issues not raised by the original authority.

Detailed Analysis:

1. Classification of Exported Goods:
The primary issue was whether the exported goods were diesel engines (classified under Tariff Item 8408 90 90) or centrifugal pumps (classified under Tariff Item 8413 70 10). The applicant classified the goods as diesel engines, attracting a duty rate of 10%, whereas the Department argued they were centrifugal pumps, attracting a duty rate of 4%. The Government noted that the goods were composite machines consisting of diesel engines and centrifugal pumps. According to Section Note 3 to Section XVI of the Central Excise Tariff, composite machines are classified based on the principal function, which, in this case, was performed by the centrifugal pump. Therefore, the correct classification was under Tariff Item 8413 70 10, attracting a 4% duty rate.

2. Recovery of Excess Rebate and Interest on Erroneous Refund:
The Department contended that the applicant misclassified the goods, resulting in an excess rebate claim. The Commissioner (Appeals) confirmed the recovery of the excess rebate but did not impose interest. The Government observed that under Sections 11A and 11AB (now Section 11AA) of the Central Excise Act, any erroneous refund, including excess rebate, must be recovered along with interest. The Government highlighted that the erroneous refund increased the applicant's cash flow at the expense of the Government, necessitating compensation through interest. The Supreme Court's ruling in Pratibha Processors v. UOI was cited, emphasizing that interest is compensatory and not penal.

3. Authority of Commissioner (Appeals) to Decide on Issues Not Raised by the Original Authority:
The applicant argued that the Commissioner (Appeals) could not decide on the classification issue as it was not raised by the original authority. The Government disagreed, stating that the classification issue was validly raised during the Department's review of the original order. The Government found that the Commissioner (Appeals) acted within their authority to address the misclassification and its implications.

Conclusion:
The Government upheld the Department's position, confirming that the goods were correctly classifiable under Tariff Item 8413 70 10, attracting a 4% duty rate. The excess rebate paid was recoverable along with interest. The Government rejected the applicant's contention that the Commissioner (Appeals) could not decide on the classification issue. The revision application filed by the Department was allowed, and the revision application filed by the applicant was dismissed.