2011 (9) TMI 709 - AT - Central Excise

Interest 11AB - Where the duty short paid by an assessee is available as credit to the recipient unit of the same assessee interest in terms of the provisions of Section 11AB is required to be confirmed as observed by Member (Technical) or no interest would be leviable as observed by Member (Judicial) - Held That - even where the duty is short paid by an assessee is available as credit to the recipient unit of the same assessee interest in terms of provisions of Section 11AB is required to be confirmed and interest is leviable.

Summary

Issues Involved:
1. Applicability of interest under Section 11AB of the Central Excise Act, 1944 for delayed payment of differential duty.
2. Revenue neutrality and its impact on the applicability of interest.
3. Interpretation of legal principles regarding interest as compensation or quasi-punishment.

Issue-wise Detailed Analysis:

1. Applicability of Interest under Section 11AB of the Central Excise Act, 1944:
The primary issue in this case was whether the appellant was liable to pay interest under Section 11AB of the Central Excise Act, 1944, for delayed payment of differential duty. The appellant had cleared goods to its own units and paid differential duty in January 2003, which was not disputed. However, the appellant contended that since the duty was not determined under sub-section 2 of Section 11A, the provisions of Section 11AB were not attracted.

The Tribunal referenced the decision in Gujarat State Fertilizers & Chemicals Ltd. Vs. CCE Vadodara, which held that interest under Section 11AB is leviable even if the duty is paid before the issuance of a show cause notice. The Tribunal concluded that Section 11AB clearly provides for interest on duty paid under sub-section 2 or sub-section 2B of Section 11A, and thus, the appellant's contention lacked merit.

2. Revenue Neutrality and its Impact on the Applicability of Interest:
The appellant argued that the entire exercise was revenue neutral since the differential duty paid was available as credit to the Revenue immediately. They cited various legal precedents to support their argument that interest is a form of compensation and should not be charged in a revenue-neutral situation.

However, the Tribunal, referencing the GSFC case, observed that the mere fact that duty was paid does not entitle the appellant to a waiver of interest. The Tribunal noted that Section 11AB envisages the demand of interest on any duty that has not been levied, paid, short-levied, short-paid, or erroneously refunded. The Tribunal also emphasized that it cannot go beyond the statute, which clearly mandates the charging of interest under Section 11AB.

3. Interpretation of Legal Principles Regarding Interest as Compensation or Quasi-Punishment:
The appellant cited definitions and legal interpretations of interest, arguing that it is compensation for the use or retention of another's money. They referenced various legal dictionaries and judgments to support their claim that interest should not be charged in revenue-neutral situations.

Member (Judicial) Archana Wadhwa agreed that interest is compensation and noted that since the differential duty was available as MODVAT credit to the appellant's own unit, the entire exercise was revenue-neutral. She argued that charging interest in such a scenario would be unjustifiable and against principles of equity and good conscience. She proposed referring the issue to a Larger Bench for resolution.

Member (Technical) B.S.V. Murthy disagreed, stating that interest liability arises under Section 11AB whenever duty liability is deferred and subsequently discharged, regardless of revenue neutrality. He emphasized that the Tribunal cannot consider presumptive grounds that were not agitated before lower authorities.

Separate Judgments:
Due to the difference of opinion between the Members, the matter was referred to a Third Member, M.V. Ravindran. The Third Member agreed with Member (Technical) B.S.V. Murthy, concluding that interest under Section 11AB is mandatory whenever duty liability is deferred and subsequently discharged, irrespective of revenue neutrality.

Conclusion:
In view of the majority order, the Tribunal confirmed that interest under Section 11AB is leviable even when the duty short-paid by an assessee is available as credit to the recipient unit of the same assessee. Consequently, the appeal filed by the appellant was rejected.