2024 (4) TMI 1255 - HC - Central Excise

Revenue neutrality - interest on the differential duty paid under the supplementary invoices raised - HELD THAT - The Learned Tribunal rightly took note of Rule 4 of the Central Excise Rule 2000 and held that differential duty was not payable in so far as respondent is concerned in this appeal. Therefore the substantial question which arose therefrom was whether interest was payable by the assessee or not. In this regard the Learned Tribunal has referred to the decision in the case of C.C.E. C. Vadodara-II v. Gujarat Narmada Fertilizers Co. Ltd. 2012 (4) TMI 309 - GUJARAT HIGH COURT and after noting the said decision the appeal filed by the assessee was allowed. To be noted that the decision in Gujarat Narmada Fertilizers was appealed against and the Hon ble Supreme Court has dismissed the appeal in COMMR. OF CEN. EXC. CUS. VADODARA II VERSUS M/S. GUJARAT NARMADA FERTILIZERS CO. LTD. 2012 (7) TMI 1177 - SC ORDER . In the case of Gujarat Narmada Fertilizers the Court held that accepting the stand of the department that even in such a case once the payment of duty was made interest liability would follow would bring about an incongruent situation. In the case of duty which was time barred if the manufacturer does not pay voluntarily it would not be possible for the department to recover it. But if he does it voluntarily despite complete period of limitation he would further be saddled with interest liability to pay statutory interest and this was not intention of the Legislature while sub-section (2B) was introduced in Section 11A of the Act. Conclusion - The reasoning given by the Learned Tribunal is found to be fully justified so far as the decision relied on by the Learned Standing Counsel for appellant the same are factually different as in all those cases the undisputed fact being the differential duty was payable which is not the case before us and cannot be adjudicated to the facts and circumstances to the case on hand. Appeal dismissed.

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

(a) Whether the Tribunal was correct in holding that there was revenue neutrality, and if so, whether statutory provisions of law could be disregarded on that basis.

(b) Whether the Tribunal was justified in allowing the appeal of the respondent/assessee and determining that interest is not payable by the assessee on the differential duty paid through supplementary invoices.

ISSUE-WISE DETAILED ANALYSIS

Issue (a): Revenue Neutrality and Statutory Provisions

The relevant legal framework involves the interpretation of revenue neutrality in the context of excise duty and the applicability of statutory provisions when revenue neutrality is claimed. The Tribunal had to assess whether the transactions in question, involving sales to independent buyers and transfers to sister concerns for captive consumption, could be considered revenue-neutral.

The Court's interpretation focused on the fact that the goods sold to sister concerns for captive consumption were assessed at the same value as those sold to independent buyers. The assessee argued that no additional duty was payable, and thus, the question of interest on such duty did not arise. The Tribunal agreed with this perspective, noting that the department's insistence on payment did not change the revenue-neutral nature of the transactions.

Key evidence included the method of valuation for stock transfers and the lack of differential duty payable, as established by the Tribunal's findings. The Court concluded that the statutory provisions should not be applied in a manner that perpetuates an illegality, especially when the transactions are revenue-neutral.

Issue (b): Interest on Differential Duty

The legal framework for this issue involved Section 11A of the Central Excise Act, particularly the interpretation of interest liability on differential duty. The Tribunal had to determine whether the assessee was liable to pay interest on the differential duty paid through supplementary invoices.

The Tribunal referenced the case of C.C.E. & C., Vadodara-II v. Gujarat Narmada Fertilizers Co. Ltd., where it was held that imposing interest on voluntarily paid duty, especially when time-barred, was not the intention of the Legislature. The Court found this reasoning applicable, as the facts of the present case did not involve undisputed differential duty.

The Tribunal's decision was supported by the fact that the Supreme Court had dismissed an appeal against the Gujarat Narmada Fertilizers decision, reinforcing the view that interest should not be imposed in situations where the duty was not legally recoverable.

SIGNIFICANT HOLDINGS

The Court upheld the Tribunal's decision, emphasizing the following principles:

"Accepting the stand of the department that even in such a case once the payment of duty was made interest liability would follow would bring about an incongruent situation."

The Court concluded that the Tribunal's reasoning was justified, as the facts of the case did not support the imposition of interest on the differential duty. The appeal was dismissed, and the connected application was closed, affirming the Tribunal's decision that the transactions were revenue-neutral and that interest was not payable by the assessee.

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