By TIOL News Service

NEW DELHI, JAN 06, 2015: THE Appellants cleared their products viz. lead and zinc concentrates to their sister concerns and as the actual moisture content and arms-length price of the products were not available at the time of clearance, the same were assessed provisionally. The provisional assessments were later finalised for the period from 1.4.2006 to 31.3.2007. At the time of finalisation, it was found that the Appellants had short paid duty to the extent of Rs. 8,75,83,871/-during the period 1.4.2006 to 11.1.2007 and excess paid duty to the extent of Rs.3,53,74,279/- during the period 12.1.2007 to 31.3.2007. As a result of finalisation, the adjudicating authority:

1. Demanded the short paid duty of Rs. 8,75,83,871/-

2. Did not allow adjustment of excess duty paid as their sister concerns (smelter units) to whom the goods were supplied have already availed Cenvat credit in respect of the duty paid on the said goods.

3. Demanded interest on the dues.

The Appellants have essentially contended that:

(1) In terms of Rule 7 of the Central Excise Rules inter se adjustment of duty short paid and excess paid is permitted if the said Rule is read harmoniously.

(2) Interest liability arises only from the date of finalisation of assessment.

(3) Refund under Section 11B is not admissible only if duty incidence is passed on to any other person. In their case, as their sister units cannot be treated 'as any other person', they are entitled to refund of the excess duty paid.

The A.R. essentially stated that the issues involved in this case are squarely covered in Revenue's favour by the CESTAT Larger Bench decision in the case of Excel Rubber Ltd. Vs. CCE, Hyderabad - 2011-TIOL-536-CESTAT-DEL-LB.

The issues:

(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 when the appellants are not entitled to refund of duty excess paid.

(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 different segment of the period involved when the appellants are not entitled to refund of duty so excess paid.

Per Member (T):

(1) as far as the question of inter se adjustment of duty short paid and duty excess paid during the period of provisional assessment at the time of finalisation of provisional assessment is concerned, the decision of the Larger Bench of the Tribunal in Excel Rubber Ltd. (supra) continues to be a good and binding law which is directly applicable to the present case.

(2) the Karnataka High Court while holding that interest liability on duty short paid would not arise if the duty excess paid was more than duty paid clearly had in mind that the duty excess paid was refundable and conspicuously articulated the same. No such interest liability would accrue if the duty short paid was less than the duty excess paid provided the assessee was entitled to claim refund of the duty excess paid.

(3) As regards the Appellants' claim that as the duty excess paid by them has been passed over only to their sister units which cannot be treated as 'any other person', they are entitled to claim refund thereof under Section 11B of Central Excise Act, this argument is found to be facetious, totally misconceived and untenable. If the sister units which have taken credit of the excess duty paid cannot be treated as 'any other person', then the Appellants cannot be said to have paid any (excess) duty as whatever they paid, they took it back (as credit) and as a result there is no question of refund. This is not in dispute that the excess duty paid by the Appellants was taken credit of by the recipients of the lead and zinc concentrates which clearly means that the appellants passed on the burden of the said excess duty and as a consequence they were not entitled to claim refund thereof under Section 11B ibid. Thus, either which way, it is beyond doubt that the Appellants were/are not entitled to claim refund of the duty excess paid. As an aside, it is also pertinent to point out that inter se adjustment of duty excess paid and duty short paid in effect means refunding of the excess duty paid to the extent of such adjustment towards duty short paid. Refunds are governed by Section 11B which makes it clear that excess duty paid by an assessee is not unconditionally refundable to the assessee.

Per Member (J):

1. If the short fall during a particular period is required to be paid by the assessee and the excess payment made during another period falling in the same financial year is to be rejected, the entire purpose of keeping the assessment provisional, becomes a futile exercise. In that case, it becomes a case of short paid or short assessed duty for a particular period and in ending up with the recovery of same. It has to be kept in mind that in some of the sub Rules, of Rule of the expression used is "payment of duty on provisional basis", such payments have to be adjusted against the final quantum of duty payable. As such, such excess duty paid during the period January, 2007 to March, 2007 are required to be adjusted against the short paid duty during the period upto January, 2007 and the assessed duty liability have to be arrived at accordingly.

2. interest liability would arise only in respect of short fall of duty, which has to be arrived at after taking into account the overall short and excess payments made by the assessee. The said finding arrived at by the High Court of Karnataka even for the purpose of confirmation of interest has to be held as the law laid by the Hon'ble High Court. If that be so, the adjustment have to be given in the present matter.

3. the question of unjust enrichment also does not arise in the present case. Further, the smelting unit have taken the credit of duty so paid by the appellant. This, cannot be adopted as one of the reasons for denying adjustments inasmuch as it is the appellants total duty liability which would be available as credit to the smelting units. After making adjustment of short paid duty with the excess paid duty, their duty liability has to be arrived at which the smelting units would take credit of. If the part of the credit has already been availed, and if the ultimate duty liability is arrived at after making adjustments, the smelting unit would avail less credit to that extent. As such, it is only principle of accounting and nothing else. This technical and procedural ground cannot be adopted for denying the credit. It is the appellants duty liability which has to be arrived at and it is the appellants total duty liability, paid by them which would be admissible as credit to the smelting unit.

4. The appellant is entitled to the adjustment of duty excess paid by them with duty short paid and their duty liability has to be arrived at accordingly. The interest would be calculated accordingly on the duty so short paid by them and late deposited.

Difference of opinion: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).

The matter is placed before the President to refer the matter to the Third Member

(See 2015-TIOL-44-CESTAT-DEL)