2016 (6) TMI 405 - AT - Central Excise

Adjustment of excess payment of duty towards short payment of duty ascertained at the time of finalisation of provisional assessment - Held that - When there is provisional assessment, the same is applicable to the entirety of the goods and to arrive at final duty liability, adjustments of duty excess paid to the short payment have to be made. See Toyota Kirloskar Auto Parts Pvt. Ltd. vs. CCE, LTU, Bangalore 2011 (10) TMI 201 - KARNATAKA HIGH COURT In conclusion, it is to be held that there is no bar in adjusting the excess paid duty towards the duty short paid. Consequently, the appeals succeed in favour of assessee.

Summary

Issues:
Adjustment of excess payment of duty towards short payment of duty in finalization of provisional assessment.

Analysis:

1. The appellant, engaged in the manufacture of man-made blended yarn and fabrics, sold goods to their sister concern. The assessable value for such clearances was determined under Rule 8 of the Central Excise Valuation Rules, 2000, provisionally assessed under Rule 7 of the Central Excise Rules, 2001 for the period April 2003 to March 2004. The original authority adjusted excess duty paid towards short payment and allowed a refund claim for the net excess payment. The Commissioner (Appeals) reversed this order, stating that excess duty cannot be adjusted for short payment without examining unjust enrichment aspect. The appellant challenged this decision, citing the need to examine unjust enrichment only when refund arises from the adjustment during finalization of assessment, supported by case laws.

2. The matter was referred to a Larger Bench to decide if an assessee is entitled to adjust excess duty payment towards short payment during finalization of provisional assessment. The Larger Bench, based on the Excel Rubber Ltd. case, concluded that excess amount paid becomes refundable and can be adjusted subject to the principle of unjust enrichment. The burden of proof lies on the assessee in this regard. The decision of the Larger Bench was considered in the present appeal, along with other cases, including the Hindustan Zinc Limited case.

3. The appellant contended that post the Larger Bench decision in the Excel Rubber Ltd. case, similar issues were considered in various cases, including the Hindustan Zinc Limited case, where the excess payment during provisional assessment could be adjusted against short payments. The Revenue, however, argued against such adjustment without testing the excess amounts paid for unjust enrichment.

4. The provisional assessment under Rule 7 of the Central Excise Rules allows for payment on a provisional basis, with final assessment to be done within a specified period. The rule also covers interest payment and refund entitlement, subject to unjust enrichment. The Hon'ble High Court of Karnataka in the Toyota Kirloskar Auto Parts Pvt. Ltd. case held that provisional assessment applies to all goods, and adjustments between excess and short payments must be made to determine final duty liability.

5. Following the High Court's decision, CESTAT in the Hindustan Zinc Limited case upheld the adjustment of excess paid duty towards short paid duty. Consequently, the present appeals succeeded, and the lower appellate authority's order was set aside.

In conclusion, the judgment allows for the adjustment of excess payment of duty towards short payment during the finalization of provisional assessment, following the precedents set by the Larger Bench decision and the High Court's ruling.