2008 (9) TMI 107 - AT - Central Excise

Liability of the manufacturers to pay interest on the differential duty of excise in the case of provisional assessment u/r 7 of the Central Excise Rules 2002 where the duty is paid suo motu before finalization of assessment - held that even where duty is paid suo motu before finalization of assessment under Rule 7 of the CER the manufacturer will be liable to interest on the differential amount of duty held that interest is not a penalty interest is a measure of compensation

Issues Involved:
1. Liability of manufacturers to pay interest on differential duty of excise in provisional assessment cases under Rule 7 of the Central Excise Rules, 2002.
2. Interpretation of Rule 7(4) regarding the period for which interest is payable.
3. Relevance of CBEC instructions and departmental circulars in determining interest liability.
4. Applicability of the concept of Revenue neutrality.
5. Impact of voluntary payment of differential duty before finalization of assessment on interest liability.

Detailed Analysis:

1. Liability of Manufacturers to Pay Interest on Differential Duty:
The primary issue revolves around whether manufacturers are liable to pay interest on the differential duty of excise in cases of provisional assessment under Rule 7 of the Central Excise Rules, 2002, even if the duty is paid suo motu before the finalization of the assessment. The Larger Bench examined the entire gamut of the dispute and concluded that the manufacturers are indeed liable to pay interest on the differential amount of duty from the first day of the month succeeding the month for which the duty is determined until the date of payment.

2. Interpretation of Rule 7(4):
Rule 7(4) of the Central Excise Rules, 2002, explicitly states that the assessee shall be liable to pay interest on any amount payable to the Central Government consequent to the order for final assessment from the first day of the month succeeding the month for which such amount is determined until the date of payment. The Bench found that this rule clearly mandates the payment of interest on the differential amount, irrespective of whether the duty is paid suo motu before the finalization of the assessment.

3. Relevance of CBEC Instructions:
The appellants relied on the Central Board of Excise & Customs (CBEC) instructions, which suggested that if the assessee pays the duty on their own at the earliest, they would not incur interest. However, the Bench clarified that these instructions do not override statutory provisions. The instruction merely indicates that the assessee will not be liable for interest due to delays by the Department in finalizing the assessment. It does not imply that the assessee is exempt from paying interest on the differential duty if it is not paid in full on time.

4. Applicability of Revenue Neutrality:
The argument that charging interest might be futile due to the concept of Revenue neutrality was noted but not addressed in detail. The Bench observed that this issue was referred to a Larger Bench in another case (Bayer ABS Limited v. CCE, Vadodara). It was noted that credit can only be taken for the duty paid and not for the interest, thus not affecting the interest liability.

5. Impact of Voluntary Payment of Differential Duty:
The appellants argued that if the differential duty is paid voluntarily before the issuance of a show cause notice, they should not be liable for interest. The Bench rejected this argument, stating that Rule 7 is a self-contained law regarding provisional assessment, and the decisions cited by the appellants were in the context of penalty imposition, not interest liability. Sections 11AA and 11AB of the Central Excise Act were also discussed, but these provisions were found to be relevant only for determining the rate of interest, not the liability itself.

Conclusion:
The Larger Bench answered the reference in the affirmative, holding that even when the duty is paid suo motu before the finalization of assessment under Rule 7, the manufacturer is liable to pay interest on the differential amount of duty. The appeal was directed to be listed before the Division Bench for disposal on merit.

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