Mahindra & Mahindra Ltd vs Commissioner Of Central Excise, Nashik

(Arising out Order-in-Appeal No. EXCUS-000-APP-47-14-15 dated 13.10.2014 passed by the Commissioner of Central Excise (Appeals), Nashik)

For approval and signature: Honble Mr. M.V. Ravindran, Member (Judicial)

1. Whether Press Reporters may be allowed to see No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy Yes of the Order?

4. Whether Order is to be circulated to the Departmental Yes authorities?

Mahindra & Mahindra Ltd. Appellant

Vs.

Commissioner of Central Excise, Nashik Respondent

Appearance:

Ms. Padmavati Patil, Advocate for the appellant Shri H.M. Dixit, AC (AR) for the respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial)

Date of hearing : 05-06-2015 Date of decision : 05-06-2015

O R D E R No:..

This appeal is directed against Order-in-Appeal No. EXCUS-000-APP-47-14-15 dated 13.10.2014.

2. Heard both sides and perused the record.

3. On perusal of the record, it transpires that the issue involved in this appeal is regarding the interest liability on the appellant in respect of the assessment which was provisional and later on finalised.

4. It transpires from the records that the appellant had sought provisional assessment of the goods cleared by them during the period April 2011 to March 2012. The provisional assessments were finalised on 27.08.2012. Before the Adjudicating Authority/ competent authority finalised the assessment on 27.08.2012, the appellant on their own calculated the differential duty payable and paid the same on 28.06.2012. Show-cause notice dated 22.08.2013 was issued demanding interest from the appellant. Appellant contested the matter before the Adjudicating Authority as well as before the first appellate authority, that the interest liability does not arise on them as they have discharged the entire duty before the finalisation took place and relied upon the provisions of Rule 7(4) of the Central Excise Rules, 2002. Both the lower authorities were of the view the appellant is liable to pay the interest. I find that the appellant had relied upon the judgment of Ispat Industries Ltd. 2007 (209) ELT 280 (T) which was upheld by the Hon'ble High Court of Bombay as reported in 2010 (259) ELT 662 (Bom).

5. I find that the impugned order of the first appellate authority is not sustainable and is liable to be set aside for more than one reason.

5.1. Firstly, there is no dispute that the appellant had paid the entire differential duty before the finalisation of the provisional assessment sought. There is no dispute that the provisional assessment were finalised by the authorities on 27.08.2012, after almost two months when the appellant paid the differential duty arising out of such finalisation and there is no difference in duty paid. I find that the first appellate authority has not considered this vital fact in his order and also on the provisions of Section 7(4). The said rules specifically states that the interest liability arises on the assessee consequent to the order of final assessment as per sub-rule (3). In the case in hand, when the amount is already discharged and on final assessment there are no dues from the appellant, liability of interest does not arise.

5.2. Secondly, identical issue was contested before the Tribunal in Ispat Industries Ltd. (supra). Tribunal held in favour of the appellant therein. Revenue aggrieved by such an order took up the matter to the Hon'ble High Court and their Lordship vide judgment dated 12.10.2010 upheld the Tribunal order. Consequently, this bench in the case of CEAT Ltd. did not follow the judgment of their Lordship in Ispat Industries Ltd. and took a different view, which was carried to the Hon'ble High Court by the appellant, CEAT Ltd. The Hon'ble High Court by order dated 06.02.2015 set aside the judgment of the Tribunal, holding that interest is not payable on the amount of differential duty, if the same is deposited or paid before finalisation order is issued. The relevant paras of their Lordships judgement are reproduced:-

18.   Then, comes sub-rule (3) where a period is prescribed for finalizing the assessment. Then, comes sub-rule (4) by which a liability to pay interest on any amount payable to Central Government, consequent to order for final assessment under sub-rule (3), at the rate specified by the Central Government by notification issued under the relevant statutory provision. The interest is payable from the date specified in the later part of sub-rule (4). What the Tribunal found in this case is that the Assessee had before finalizing of the assessment remitted or paid the differential duty. Thus, the assessment provisionally made resulted in payment of that sum and specified in the provisional assessment order. Further, the Assessee volunteered on its own to determine the liability of duty and the amount in that behalf came to be paid. That was before the finalization of the assessment. There resulted nothing consequent to finalizing of assessment. The amount as received earlier, namely, on provisional assessment and the later voluntary exercise of the Assessee was the sum payable and recoverable. It is in these circumstances that the Tribunal proceeded on the footing that Rule 8 will be of the assistance in construing Rule 7(4). That part of the discussion in the Tribunals order is at para 7, page 37 to 39 of the paper book. Then, the Tribunal placed upon its Larger Bench decision in the case of Cadbury India Ltd. (supra) and following it so also that of the High Court of Karnataka dismissed the Assessees Appeal. The relevant finding of the Tribunal at para 13 is that the Assessee has paid the duty before formal finalization order issued by the Deputy/Assistant Commissioner will not make any difference to the legal position.

 

28.?It is in this backdrop that the analysis of the legal provisions of the Rules came to be made from para 8 onwards on which heavy reliance has been placed by Mr. Jetly. Thus, upon finalization of the assessment, the liability to pay interest and in terms of Rule 7(4) was not in dispute but the time from which it became leviable and payable. The argument that determination was not made was negatived and it was held that the liability to pay duty is finally determined with the passing of the final assessment order is the conclusion of the Tribunal. Therefore, interest is liable to be paid within one month from the date of final assessment order was the conclusion recorded. Therefore, the liability to pay duty is finally determined with the passing of the final assessment order and also the obligation to pay arises only when the Assessee does not pay the duty as per that order. This conclusion was not upheld by the High Court of Karnataka and in the teeth of the language of Rule 7(4). The observations and findings in para 15 would denote that the High Court of Karnataka held that the date of provisional assessment and the date of final assessment have no relevance in deciding the payment of interest.

The date on which duty is payable is provided under the Rules. If the duty determined to be paid under the final assessment is not paid on the due date, if it is short paid, not only the Assessee has to pay the balance duty, he is also liable to pay interest on such short payment of duty from the due date. The only advantage is, he will get the benefit of one month from the said due date as is clear from Rule 7(4). The order passed by the Tribunal holding that interest is payable after one month from the date of final assessment order is erroneous. This is what the High Court held. In the aforementioned circumstances, when the Larger Bench decision in Cadbury India Ltd. relied upon the aforesaid view of the High Court of Karnataka, it lost sight of the fact that the High Court of Karnataka was considering a somewhat different situation. There was nothing therein which would enable the larger Bench to hold that the interest which is contemplated by Rule 7(4) is payable in all cases and, therefore, even if the Assessee makes payment of the differential duty prior to finalization of assessment, interest would still be leviable, payable and recoverable in terms of Rule 7(4).

For that the Tribunal took assistance of Section 11AA and Section 11BB.

29.?We do not find this conclusion of the Tribunal to be correct. As has been rightly urged before us that when a statute levying and imposing tax makes specific provision for recovery of interest on delayed payment only, then, such interest and the liability to pay the same arises. In that regard, the Constitution Bench judgment in the case of J.K. Synthetics Limited v. Commercial Taxes Officer (supra) referred to the Rajasthan Sales Tax Act, 1954. It referred to Section 11B at page 281 of the judgment and at page 282 in para 5 it reproduced sub-sections (2) and (2A) of Section 7. It, then, held that a three Bench decision of the Honble Supreme Court in the case of Associated Cement Co. Ltd. v. CTO reported in (1981) 4 SCC 578 does not lay down the correct law. In para 11, it reproduced the majority conclusions in the case of Associated Cement Co. Ltd. In para 13, the Honble Supreme Court reproduced the minority view and in paras 16 and 17 it held thus :-

16.?It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. (See Whitney v. IRC, CIT v. Mahaliram Ramjidas, India United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay and Gursahai Saigal v. CIT, Punjab). But it must also be realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount.

(See Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji and Union of India v. A.L. Rallia Ram). Our attention was, however, drawn by Mr. Sen to two cases. Even in those cases, CIT v. M. Chandra Sekhar and Central Provinces Manganese Ore Co. Ltd. v. CIT, all that the Court pointed out was that provision for charging interest was, it seems, introduced in order to compensate for the loss occasioned to the Revenue due to delay. But then interest was charged on the strength of a statutory provision, may be its objective was to compensate the Revenue for delay in payment of tax. But regardless of the reason which impelled the Legislature to provide for charging interest, the Court must give that meaning to it as is conveyed by the language used and the purpose to be achieved. Therefore, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. So construed and applying the normal rule of interpretation of statutes, we find, as pointed out by us earlier and by Bhagwati, J. in the Associated Cement Co. case, that if the Revenues contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the Legislature.

17.?Let us look at the question from a slightly different angle. Section 7(1) enjoins on every dealer that he shall furnish prescribed returns for the prescribed period within the prescribed time to the assessing authority. By the proviso the time can be extended by not more than 15 days. The requirement of Section 7(1) is undoubtedly a statutory requirement. ..

30.?In the case before this Court in Commissioner of Central Excise v. Ispat Industries Ltd. the facts were that differential duty was paid prior to the date of final assessment. The Division Bench in confirming the view of the Tribunal held as under :-

2.?This appeal has been admitted on the following question of law :

Whether the CESTAT was right in holding that in terms of the provisions of Rule 7(4), respondent No. 1 could not be held liable to pay the interest on the differential duty as the duty amount has been paid prior to the final assessment, especially when provisions of Rule 7(4) of Central Excise Rules, 2002 read with Section 11AB(2B) of Central Excise Act, 1944, explicitly stipulates that interest is payable on delayed payment of any amount, at the appropriate rates from the first day of the month succeeding the month for which such amount is determined till the date of payment thereof.

3.?Perusal of the order of the CESTAT [2007 (209) E.L.T. 280 (Tribunal)] shows that in the present case, differential duty was paid prior to the date of final assessment. Interest under Rule 7(4) of the Central Excise Rules, 2002 is payable from the first date of the month succeeding the month for which such amount is determined by the final assessment till the date of payment. Since differential duty was paid even before the final assessment was made, the Tribunal has held that the respondent assessee is not liable to pay interest. In our opinion, no fault can be found with the order of the Tribunal. Accordingly, question raised by the Revenue is answered in favour of the assessee and against the Revenue. The appeal is disposed of. No order as to costs.

31.?The Revenue carried an Appeal from the order passed in the case of Ispat Industries Ltd. to the Honble Supreme Court but the Special Leave Petition was dismissed. In the case of Tata Motors, the Tribunal once again followed the view taken in Ispat Industries Ltd. and allowed the Assessees Appeal.

6. As can be seen from the above reproduced paragraphs, the issue is now settled by the Hon'ble High Court in CEAT Ltd. as well as earlier decision holding that interest is not payable if assessee pays the duty before finalisation, I find the impugned order is unsustainable and liable to be set aside and I do so.

7. The impugned order is set aside and the appeal is allowed.

(Pronounced in Court)

(M.V. Ravindran) Member (Judicial)

//SR

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