2011 (10) TMI 235 - AT - Central Excise

Procurement of Excisable Goods at Concessional Rate of Duty - Held that - When manufacturer could not use the subject goods for intended purpose the supplier is to bring back the goods and remove them at normal rate it do not create any differential duty liability on supplier - Merely because the supplier has not brought back the goods to his factory to avoid transportation expenses but clears the same on payment of differential duty from the premises of the OEM themselves it does not create an interest liability on the supplier of the goods. Decided in favour of assessee.

Summary

Issues:
1. Liability to pay interest under Rule 6 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001.
2. Applicability of Section 11AB of the Central Excise Act, 1944.
3. Interpretation of Rule 6 regarding differential duty and interest liability.
4. Time limit for raising a demand for interest liability under Section 11AB.

Analysis:

Issue 1: Liability to pay interest under Rule 6 of the Central Excise Rules
The case involved the appellant, a manufacturer of tyres, who cleared goods to Original Equipment Manufacturers (OEMs) at a concessional rate under Notification No. 03/2001-CE. Some rejected goods were cleared by the appellant from the OEM premises on payment of appropriate duty. The appellate authority held that interest liability under Rule 6 arises if goods cleared under concessional rate are not used for intended purposes. The Tribunal noted that Rule 6 places the responsibility on the recipient of the goods for differential duty and interest, not the supplier. The appellant's action of not bringing back rejected goods to the factory did not create interest liability for the supplier, as per the rule's provisions.

Issue 2: Applicability of Section 11AB of the Central Excise Act
The appellant argued that Section 11AB applies only in cases of short levy, short payment, non-levy, or non-payment of duty under Section 11A(2) or 11A(2B). Since the appellant did not bring back rejected goods to the factory but cleared them from OEM premises, they contended that interest liability did not arise. The Tribunal agreed, emphasizing that interest liability under Section 11AB is not triggered in such circumstances, as there was no short payment of excise duty as per the specified sections.

Issue 3: Interpretation of Rule 6 regarding differential duty and interest liability
The Tribunal analyzed Rule 6, which addresses recovery of duty when goods are not used for intended purposes. It clarified that the rule places the onus on the recipient of the goods for differential duty and interest, while the supplier must bring back rejected goods to the factory. The Tribunal held that the lower appellate authority's view, demanding interest from the supplier, was not legally sustainable under Rule 6's explicit provisions.

Issue 4: Time limit for raising a demand for interest liability under Section 11AB
The Tribunal noted that the demand for interest on differential duty paid was raised after more than a year from the relevant period. While Section 11AB does not specify a time limit for issuing such demands, the Tribunal emphasized that demands must be raised within a reasonable period. In this case, the demand for interest was considered time-barred due to the delay in raising it, exceeding the reasonable time frame.

In conclusion, the Tribunal allowed the appeal, holding that the interest liability demand was not sustainable under Rule 6, and the demand for interest was barred by the limitation of time.