2010 (9) TMI 904 - AT - Central Excise

When the differential duty required to be paid is available as credit to the same appellant s own recipient unit, the interest on such differential value is required to be charged or not - short payment of duty Alleged that assessable value adopted by them it had not been worked out at 115% cost of the production duly certified by Cost Accountant - later differential duty deposited Held that - Appellant is liable to discharge interest liability as ascertained by lower authorities - even where the duty is short paid by an assessee, is available as credit to the recipient unit of the same assessee, interest in terms of provisions of Section 11AB is required to be confirmed and interest is leviable.

Issues Involved:
1. Whether the appellant is required to pay interest under Section 11AB of the Central Excise Act, 1944 for delayed payment of duty.
2. Whether the fact that the differential duty paid was available as MODVAT credit to the appellant's own recipient unit affects the liability to pay interest.

Issue-wise Detailed Analysis:

1. Interest under Section 11AB for Delayed Payment of Duty:
The appellant cleared goods to their own factories but did not calculate the assessable value at 115% of the cost of production certified by a Cost Accountant. The differential duty of Rs. 26,90,980/- was paid in January 2003. The correctness of the demand and payment is not disputed; the issue is the liability to pay interest under Section 11AB for delayed payment of duty.

A show cause notice was issued on 8-7-2005, leading to the confirmation of interest by the Commissioner (Appeals). The appellant contended that since the duty was not determined under sub-section (2) of Section 11A, Section 11AB should not apply. However, the Tribunal referenced the Gujarat State Fertilizers & Chemicals Ltd. decision, which held that interest is leviable even if duty is paid before the issuance of a show cause notice. Section 11AB clearly states that interest is applicable whether duty is paid under sub-section (2) or (2B) of Section 11A.

The Tribunal also noted that interest is not considered quasi-punishment but is mandated by law for any duty not levied, paid, short-levied, or short-paid. The High Court of Mumbai in Padmashri Vikhe Patil SSK Ltd. supported this view, stating that interest under Section 11AB is chargeable regardless of the reason for short payment or non-payment.

2. Revenue Neutrality and Interest Liability:
The appellant argued that the differential duty paid was immediately available as MODVAT credit to their own recipient unit, making the exercise revenue neutral. They cited various cases to support the argument that interest is compensatory and should not be charged in revenue-neutral situations.

However, the Tribunal found that the statutory provisions of Section 11AB are clear and unambiguous, and the Tribunal cannot go beyond the statute. The Tribunal referenced the Gujarat State Fertilizers & Chemicals Ltd. case, which held that interest is payable even if duty is paid before the issuance of a show cause notice. The Tribunal emphasized that the statutory mandate of Section 11AB requires the payment of interest on any delayed payment of duty.

Separate Judgments by Judges:
The case was initially heard by a Single Member, who referred it to a Larger Bench. The President directed that the matter be listed before a Division Bench. The Division Bench, consisting of Member (Judicial) and Member (Technical), had differing views.

Member (Judicial):
The Member (Judicial) argued that since the differential duty was available as MODVAT credit to the appellant's own unit, the entire exercise was revenue neutral. They cited legal dictionaries and Supreme Court judgments to support the view that interest is compensatory and should not be charged in revenue-neutral situations. The Member (Judicial) recommended referring the issue to a Larger Bench for resolution.

Member (Technical):
The Member (Technical) disagreed, stating that the statutory provisions of Section 11AB are clear and mandate the payment of interest on any delayed payment of duty. The Member (Technical) emphasized that the Tribunal cannot go beyond the statute and that the interest liability arises regardless of revenue neutrality.

Third Member's Opinion:
The Third Member (Judicial) agreed with the Member (Technical) that interest liability under Section 11AB arises for any delayed payment of duty, even if the differential duty is available as MODVAT credit to the recipient unit. The Third Member emphasized that the statutory provisions are clear and unambiguous.

Final Decision:
In view of the majority order, the appeal was rejected, and it was confirmed that interest under Section 11AB is payable even when the differential duty is available as credit to the recipient unit of the same assessee. The appeal filed by the appellant was rejected.

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