2023 (6) TMI 1102 - AT - Central Excise

Interest on Differential duty - appellant paid duty on the strength of supplementary invoices - stock transfers - sale of goods to the independent buyers as well as to their sister units - CENVAT Credit - Revenue Neutrality - HELD THAT - The answer is that appellant is not liable to pay duty in terms of Rule 8 of Central Excise Valuation Rules, 2000. As differential duty was not payable in appeal mentioned at Sl.No.1, the question arises whether interest is payable by the appellant or not - similar issue was examined by the Hon ble Gujarat High Court in the case of COMMISSIONER OF CENTRAL EXCISE CUSTOMS, VADODARA-II VERSUS M/S GUJARAT NARMADA FERTILIZERS CO LTD 2012 (4) TMI 309 - GUJARAT HIGH COURT , wherein the Hon ble High Court held The recovery of the unpaid or short paid duty would become time-barred. If the manufacturer does not pay it voluntarily, it would not be possible for the Department to recover the same. But if he does it voluntarily despite completion of period of limitation, he would, further be saddled with the liability to pay statutory interest. Surely, this was not the intention of the Legislature while sub-section (2B) was introduced in Section 11A of the Act. As it is already held that as the appellant was not liable to pay duty in terms of Rule 8 of Central Excise Valuation Rules, 2000, therefore, no interest is payable by the appellant in view of the decision of the Hon ble High Court in the case of CCE C, Vadodara-II v. Gujarat Narmada Fertilizers Co.Ltd. CENVAT Credit - revenue neutrality - HELD THAT - It is the revenue neutral situation, no duty is payable by the appellant therefore whatever duty paid by the appellant Cenvat credit of the same has been availed by the sister unit, question of payment of interest does not arise. Therefore, the impugned order is set aside and the appeal is allowed with consequential relief.

Summary

Issues Involved:
1. Liability to pay interest on differential duty paid via supplementary invoices.
2. Revenue neutrality and its impact on the obligation to pay interest.
3. Applicability of extended period for demand.

Issue 1: Liability to Pay Interest on Differential Duty Paid via Supplementary Invoices
The appellant, a manufacturer of iron and steel products, paid differential duty on stock transfers between its units using supplementary invoices but did not pay interest on this differential duty. The Revenue argued that interest was due on the differential duty for the intervening period. The Tribunal held that since the appellant was not liable to pay duty in terms of Rule 8 of the Central Excise Valuation Rules, 2000, the question of paying interest on such additional duty does not arise. This conclusion was supported by the Gujarat High Court's decision in CCE & C, Vadodara-II v. Gujarat Narmada Fertilizers Co. Ltd., which stated that if the duty is not legally payable, interest on such duty cannot be demanded.

Issue 2: Revenue Neutrality and Its Impact on the Obligation to Pay Interest
For appeals mentioned at Sl.No.2-12, the Tribunal considered the appellant's argument that the situation was revenue neutral because the sister units availed Cenvat Credit for the differential duty paid. The Tribunal referenced the Larger Bench decision in Jay Yuhshin Ltd. v. CCE, New Delhi, which held that in a revenue-neutral situation, the question of paying interest does not arise. The Tribunal concluded that since the duty paid by the appellant was available as Cenvat Credit to their sister units, the entire exercise was revenue neutral, and thus, no interest was payable.

Issue 3: Applicability of Extended Period for Demand
The appellant contended that the demands were time-barred as there was no misstatement or suppression of facts, and hence, the extended period could not be invoked. The Tribunal did not explicitly address this issue in the summary provided but focused on the revenue neutrality and the non-applicability of interest on differential duty.

Conclusion:
The Tribunal set aside the impugned orders demanding interest and imposing penalties on the appellant, allowing all appeals with consequential relief. The decision emphasized that in a revenue-neutral situation, the payment of interest does not arise, and if the duty itself was not legally payable, interest on such duty cannot be demanded. The Tribunal's decision was pronounced in the open court on 22.06.2023.