2014 (10) TMI 447 - HC - Central Excise

Waiver of pre deposit - Interest under section 11AB - Penalty under Rule 173Q(1) - Whether, under the facts and circumstances of the case, the CESTAT was justified in directing to deposit interest liability for the period 14-5-2003 (when Section 11DD came into force) till the day demand of differential amount was paid - Held that - provisional assessment was made on account of the disputed classification of the product. The relevant date in cases where duty of excise is provisionally assessed is the date of adjustment of duty after the final assessment. As a result Section 11A comes into reckoning only after the final assessment has taken place. If the Central Excise Officer concludes that duty has been short levied, the officer is empowered to take proceedings under section 11A within limitation after issuing show cause notice. Final assessment is a condition precedent for invocation of section 11A. Clearance was made on the basis of provisional assessment. This being undisputed position, there is no justification in directing pre-deposit of the interest amount from the day Section 11DD came into effect till payment of differential duty especially in view of the fact that section 35-F of the Central Excise Act does not provide for pre-deposit of the interest demand prior to 11th May, 2007. The impugned order dated 7th October, 2013 is, therefore, uncalled for. Perusal of the impugned order reveals that the tribunal has proceeded on the basis that the order in original relates to assessment during the relevant period. proceeds to record that the appellant did collect duty liability at enhanced rate applicable to tariff item 14F even though they were discharging the duty liability only at the lower rate applicable to Tariff Item 68. That the appellant wanted to enjoy the benefit of duty collected at the higher rate from the customers without remitting the same to the exchequer and therefore the Appellant was liable to discharge interest liability on the duty amount, the tribunal therefore arrived at the prima facie conclusion that the Appellant has not made out a case for the complete waiver of dues adjudged against them and directed the Appellant to remit the interest liability from 14th May, 2003 till the date of which duty liability was discharged. - Partial stay grated.

Summary

Issues Involved:
1. Whether the CESTAT was justified in directing the deposit of interest liability for the period from 14-5-2003 till the day the differential amount was paid.
2. Whether the CESTAT was justified in directing the deposit of interest liability in the absence of a provision to charge interest on the amount determined on the finalization of provisional assessment.

Issue-wise Detailed Analysis:

1. Justification of CESTAT's Direction to Deposit Interest Liability:

The appellant, engaged in the manufacture of Liquid Hair Dye, faced a classification dispute with the department, which issued a show cause notice proposing classification under Tariff Item 14F. The appellant provisionally assessed the product under Tariff Item 68 and paid the applicable duty. The Assistant Collector confirmed the classification under Tariff Item 14F, resulting in a demand for differential duty.

The appellant challenged this classification and the demand for differential duty in a writ petition, which was dismissed by the High Court. However, the Supreme Court later upheld the appellant's classification under Tariff Item 68. Despite this, the Additional Commissioner of Central Excise confirmed the demand for differential duty and imposed interest and penalties.

The appellant contended that interest was not payable under section 11AB, which was introduced after the relevant period. The CESTAT directed the appellant to remit interest liability from the date section 11DD came into effect until the payment of the differential duty. The appellant argued that section 35F of the Central Excise Act did not provide for pre-deposit of interest demand prior to 11th May 2007.

2. Absence of Provision to Charge Interest on Amount Determined on Finalization of Provisional Assessment:

The appellant argued that the final assessment was not completed, and the parties proceeded based on provisional assessment pending the classification dispute. The Supreme Court's decision in Serai Kella Glass Works v. CCE established that section 11A comes into play only after final assessment. The appellant maintained that the duty was cleared based on provisional assessment, and the Supreme Court upheld their classification under Tariff Item 68.

The tribunal's reliance on a High Court decision, which was overruled by the Supreme Court, to impose interest liability was deemed unjustified. The appellant was forced to proceed on provisional assessment due to the department's incorrect insistence on a higher tariff item. The tribunal's direction for pre-deposit of interest was found unsustainable, as section 35F did not mandate pre-deposit of interest prior to the specified date.

Conclusion:

The High Court concluded that the tribunal was not justified in directing the pre-deposit of interest amount, as the appellant was proceeding based on provisional assessment due to the department's incorrect classification insistence. The Supreme Court's decision in favor of the appellant's classification further invalidated the tribunal's reliance on the overruled High Court decision. The appeal was allowed, and the impugned order dated 7th October 2013 was quashed. There was no order as to costs.