2017 (3) TMI 1593 - AT - Central Excise

Interest u/s 11AB of CEA - price of the final product was enhanced subsequent to clearance - Held that - there is no allegation of deliberate short-payment of duty on the part of the assessee - The assessable value of the goods cleared having, eventually, turned out to be higher than that on which duty liability had been discharged at the time of removal, failure to pay differential duty, irrespective of the cause, would crystallize liability to interest - appeal dismissed - decided against appellant.

Summary

Issues: Appeal against order-in-appeal, Interest liability, Penalty imposition, Interpretation of Central Excise Act, 1944

Issue 1: Appeal against order-in-appeal
The appeal was filed against the order-in-appeal no.AGS(281) 237/2010 dated 19th October 2010 of the Commissioner of Central Excise & Customs (Appeals), Aurangabad. This appeal arose from a remand by the Tribunal to reconsider the submissions of the appellant against the decision of the original authority that had been challenged by them before the first appellate authority.

Issue 2: Interest liability and Penalty imposition
The proceedings began with a notice issued to the appellant for the payment of interest under section 11AB of the Central Excise Act, 1944 on a differential duty amount. The appellant calculated the differential duty to be ?4,80,970 on clearances made to M/s Bajaj Auto Limited, where the final product's price was enhanced post-clearance. In the initial round before the first appellate authority, the decision of the lower authority to charge interest and penalty was contested by both the assessee and the Revenue. The first appellate authority upheld the interest liability and also confirmed a penalty equal to the voluntarily paid differential duty. In the impugned order, the first appellate authority affirmed the interest liability based on a decision of the Hon’ble Supreme Court.

Issue 3: Interpretation of Central Excise Act, 1944
During the hearing, it was noted that the first appellate authority, while confirming the interest liability, set aside the penalty. It was acknowledged that there was no allegation of deliberate short-payment of duty by the assessee. The liability to pay interest under the Central Excise Act, 1944 is not a penalty for contravention but aims to deprive an assessee of unintended benefits from retaining tax that was due. Duty liability under the Act arises upon the manufacture of goods and must be discharged at the time of goods removal. If the assessable value of cleared goods turns out to be higher than the value on which duty was initially paid, failure to pay the differential duty, regardless of the reason, would trigger interest liability.

Judgment
The first appellate authority's decision to set aside the penalty, which was not contested by the Revenue, was upheld. The remaining dispute regarding interest liability was deemed without merit, leading to the dismissal of the appeal. The judgment highlighted the distinction between interest liability and penalty under the Central Excise Act, emphasizing that interest aims to neutralize unintended benefits from delayed duty payment. The judgment also underscored the obligation to discharge duty at the time of goods removal, regardless of subsequent value adjustments.