2015 (1) TMI 378 - AT - Central Excise

Finalization of provisional assessment - Short payment of excise duty and some excess payment of excise duty - Adjustment of excess payment to short payment of duty - Difference of opinion - Matter referred to President for referring the matter to Third Member with following question of law - Whether the appeal is to be rejected by denying the appellant s request for adjustment of excess paid duties with the short paid duty during the financial year 2006-2007, as held by Member (Technical) or such adjustments have to be allowed as held by Member (Judicial).

Summary

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 finalisation 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.

Issue-Wise Detailed Analysis:

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

The appellants contended that a harmonious reading of Rule 7 of the Central Excise Rules permits inter se adjustment of duty short paid and duty excess paid during the period of provisional assessment. They cited various judgments to support their contention, including Asian Paints Ltd. Vs. CCE, Mumbai-III, M/s Goetz (India) Ltd. Vs. CCE, Bangalore, and H.Z.L. Vs. CCE Jaipur-II. The appellants also referred to the judgment of the Karnataka High Court in the case of Toyota Kirloskar Auto Parts Pvt Ltd. Vs. CCE, LTU, Bangalore, which they claimed supported their position on inter se adjustments and non-liability of interest if the overall duty paid was not short.

However, the tribunal noted that the issue of inter se adjustment was decisively addressed by the CESTAT Larger Bench in the case of Excel Rubber Ltd. Vs. CCE, Hyderabad. The Larger Bench held that such adjustments are subject to the principle of unjust enrichment and that any excess amount ascertainable as refundable can only be adjusted after ensuring it is not liable to be credited to the consumer welfare fund. The tribunal emphasized that the decision in Excel Rubber Ltd. remains binding and applicable to the present case, thereby disallowing inter se adjustments where the assessee is not eligible for a refund of the excess payment.

The tribunal also clarified that the judgment of the Karnataka High Court in Toyota Kirloskar Auto Parts did not address the issue of inter se adjustment directly and was thus not binding on this specific matter. The tribunal concluded that the appellants were not entitled to claim a refund of the excess duty paid as it was credited by their sister units, thus confirming that inter se adjustment was not permissible.

2. Interest Chargeable on Duty Short Paid:

The appellants argued that interest liability arises only from the date of finalisation of assessment and cited the CESTAT judgment in Karnataka Vidyuth Karkhane Ltd. Vs. CCE, Bangalore-III to support this view. They further argued that since the excess duty paid was more than the short-paid duty, no interest should be levied.

The tribunal referred to the judgment of the Karnataka High Court in Toyota Kirloskar Auto Parts, which held that interest liability does not arise if the duty excess paid is more than the duty short paid, provided the assessee is entitled to claim a refund of the excess duty paid. However, the tribunal noted that in the present case, the appellants were not entitled to claim a refund of the excess duty paid, as it was credited by their sister units. Therefore, the tribunal concluded that the judgment of the Karnataka High Court was distinguishable and inapplicable to the present case.

The tribunal emphasized that allowing inter se adjustment for the purpose of interest would violate the provisions of Rule 7(4) and Rule 7(5) of the Central Excise Rules, as well as the provisions relating to interest on duty short paid (Section 11AA) and interest on refunds (Section 11BB) of the Central Excise Act. Consequently, the tribunal upheld the interest liability on the duty short paid by the appellants.

Separate Judgment by Member (Judicial):

Member (Judicial) Archana Wadhwa disagreed with the conclusion of Member (Technical) R K Singh. She argued that the provisional assessments for the entire financial year should be considered cumulatively, allowing for the adjustment of excess duty paid against short-paid duty. She referred to the Karnataka High Court's judgment in Toyota Kirloskar Auto Parts, which supported the principle of adjusting excess payments against shortfalls to arrive at the final duty liability.

Member (Judicial) further noted that the issue of unjust enrichment does not arise in the present case as the goods were transferred on an interplant basis, and the smelting units had taken credit of the duty paid by the appellants. She concluded that the appellants were entitled to the adjustment of duty excess paid against duty short paid, and the interest liability should be calculated accordingly.

Difference of Opinion:

The difference of opinion between Member (Technical) and Member (Judicial) on whether the appeal should be rejected by denying the appellant's request for adjustment of excess paid duties with the short paid duty during the financial year 2006-2007 or allowing such adjustments was placed before the Hon'ble President for referring the matter to a Third Member.