2015 (11) TMI 953 - AT - Central Excise

Adjustment of excess paid duty with the short paid duty during the Financial Year 2006-07 - Finalization of provisional assessment - Difference of opinion - Majority order - Held that - Adjudicating Authority has held that for the part of the period in hand the appellant has short paid the duty of 3, 52, 78, 170/- and in respect of other part of the period the appellant has paid 3, 53, 74, 279/- duty in excess. Therefore the duty excess paid by the appellant is more than the duty short paid by the appellant. Therefore appellant is not required to pay any duty. Consequently interest is not payable - The appellant is entitled for adjustment of excess paid duty with the short paid duty during the financial year 2006-07 - Decided in favour of assessee.

Issues Involved:

1. Whether inter se adjustment of duty short paid and duty excess paid during the period of provisional assessment is permitted at the time of finalization of assessment in terms of Rule 7 of the Central Excise Rules.
2. Whether interest is chargeable on the duty short paid in terms of sub-rule (4) of Rule 7 of Central Excise Rules regardless of the duty excess paid during a different segment of the period involved.
3. Whether the appellant is entitled to claim a refund of excess duty paid when the duty incidence is passed on to their sister units.

Detailed Analysis:

Issue 1: Inter se Adjustment of Duty Short Paid and Duty Excess Paid

The appellants argued that Rule 7 of the Central Excise Rules allows for inter se adjustment of duty short paid and duty excess paid if read harmoniously. They cited several judgments supporting their contention. However, the Tribunal referred to the CESTAT Larger Bench decision in Excel Rubber Ltd. vs. CCE, Hyderabad, which concluded that excess amounts ascertained after final assessment would become refundable subject to the principle of unjust enrichment. The Tribunal noted that the decision in Excel Rubber Ltd. remains binding and applicable, which does not permit inter se adjustment unless the excess duty paid is eligible for refund. Thus, the Tribunal ruled that inter se adjustment is not allowed in this case as the appellants were not eligible for a refund of the excess duty paid.

Issue 2: Chargeability of Interest on Duty Short Paid

The appellants contended that interest liability arises only from the date of finalization of assessment, referring to the judgment in Karnataka Vidyuth Karkhane Ltd. vs. CCE, Bangalore-III. The Tribunal, however, pointed out that the judgment of the Karnataka High Court in Toyota Kirloskar Auto Parts Pvt. Ltd. vs. CCE addressed the issue of interest on short-paid duty, concluding that interest is not chargeable if the overall duty paid is not short. The Tribunal emphasized that the principle laid down by the High Court is binding but noted that in the present case, the appellants were not entitled to a refund of the excess duty paid. Therefore, the Tribunal found the High Court judgment distinguishable and inapplicable, ruling that interest on duty short paid is chargeable in this case.

Issue 3: Entitlement to Refund of Excess Duty Paid

The appellants claimed that they were entitled to a refund of the excess duty paid as their sister units cannot be treated as 'any other person.' The Tribunal rejected this argument, stating that the excess duty paid was taken as credit by the sister units, meaning the burden of the excess duty was passed on. Consequently, the appellants were not entitled to claim a refund under Section 11B of the Central Excise Act. The Tribunal further noted that allowing inter se adjustment would violate Section 11B, which governs refunds and emphasizes that no refund shall be made except as provided in subsection (2).

Separate Judgment by Member (Judicial):

Member (Judicial) disagreed with the findings of Member (Technical) and held that the appellants are entitled to adjust the excess duty paid against the short-paid duty during the same financial year. The Member (Judicial) referred to the Karnataka High Court decision in Toyota Kirloskar Auto Parts Pvt. Ltd., which allowed such adjustments and ruled that interest liability would arise only if there is a net shortfall after considering the overall duty payments. The Member (Judicial) emphasized that the provisional assessments for the entire financial year should consider the total duty liability, and adjustments should be made accordingly.

Final Decision:

The matter was referred to a third member due to the difference of opinion. The third member agreed with the Member (Judicial), holding that the appellant is entitled to adjust the excess duty paid against the short-paid duty during the financial year 2006-07. Consequently, the appeal was allowed, and the impugned order was set aside.

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