2015 (2) TMI 794 - HC - Central Excise

Provisional Assessment - Demand of interest on payment of differential duty before formal finalization of assessment - Held that - Rule 7 and its subrules if read together would denote as to how the Revenue secures itself against any provisional assessment. If on a provisional assessment certain amount of duty is paid but it is not accurate and correct then the final assessment is contemplated on a finalization of the assessment. Upon finalizing it is possible that the Revenue will determine the duty liability and to that of something more that has been recovered in the provisional assessment. When that exercise is finalized and consequent thereon that the Assessee shall be liable to pay interest on any amount payable to the Central Government. The liability to pay interest arises on any amount payable to Central Government and consequent to order for final assessment under Rule 7 subrule (3). We are in agreement with the Assessee in the present case that the later part of subrule (4) is not attracted. The liability to pay interest on any amount payable to Central Government consequent to order for final assessment is not a situation to be found in the present case. It is not the argument of the Revenue that what was paid by the Assessee as differential duty and prior to finalizing of the assessment is not correct accurate or proper computation of the liability. Having found that the final assessment resulted in nothing due and payable to the Government we do not find any justification then to recover interest. If the interest was to be recovered and was indeed payable on the date on which the Assessee made payment of differential duty and prior to finalization of the assessment then the Rule would have specifically said so. In the absence of any such stipulation in the Rules the dictum in the decision of the Hon ble Supreme Court in J.K. Industries Ltd. 2011 (3) TMI 373 - KARNATAKA HIGH COURT would apply. If that principle can be applied then there was no liability to pay interest. If the liability to pay interest between the time or the period of provisional assessment and payment of differential duty until the final assessment has to be read in the Rule that is not possible. The interest in this case is not payable merely on equitable considerations. Such being the position we do not find that the Tribunal was justified in dismissing the Assessee s Appeal. It is unfortunate that the Tribunal ignores and brushes aside even orders of this Court. Had the Tribunal noted the facts in Ispat Industries Ltd. 2010 (10) TMI 178 - BOMBAY HIGH COURT and Tata Motors Ltd. 2011 (3) TMI 531 - CESTAT MUMBAI it would have possibly concluded that those orders would bind it in this case. Decided in favor of appellant.

1. ISSUES PRESENTED and CONSIDERED

(i) Whether, under the facts and circumstances of the case, interest is payable on the differential duty arising on finalization of provisional assessment under Rule 7 of the Central Excise Rules, 2002?

(ii) Whether the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) was correct in not following two binding precedents of the Bombay High Court in the cases of Ispat Industries and Tata Motors, which held that interest is not payable if the differential duty is paid prior to finalization of provisional assessment?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Liability to pay interest on differential duty arising on finalization of provisional assessment under Rule 7 of the Central Excise Rules, 2002

Relevant legal framework and precedents: Rule 7 of the Central Excise Rules, 2002 governs provisional assessment. Subrule (4) states that the assessee shall be liable to pay interest on any amount payable to the Central Government consequent to the order for final assessment under subrule (3), at the rate specified under section 11AA or 11AB of the Central Excise Act, from the first day of the month succeeding the month for which such amount is determined until payment. Section 11AB provides for interest on delayed payment of duty. The Supreme Court judgments in Commissioner of Central Excise, Pune v. SKF India Ltd. and Commissioner of Central Excise v. International Auto Ltd. elucidate the scope of interest liability under these provisions. The Constitution Bench judgment in J.K. Synthetics Ltd. v. Commercial Taxes Officer lays down principles of strict construction of charging provisions and machinery provisions in tax statutes.

Court's interpretation and reasoning: The Court examined the language of Rule 7(4), emphasizing that the liability to pay interest arises only on any amount payable consequent to the final assessment order. The Court noted that if the differential duty is paid by the assessee before the final assessment order is passed, then no amount remains payable consequent to the final assessment, and thus, no interest liability arises under Rule 7(4). The Tribunal had relied on its larger Bench decision in Cadbury India Ltd., which held interest is payable even if differential duty is paid prior to finalization of assessment. However, the Court distinguished that decision on facts and legal reasoning, noting that the larger Bench relied on section 11AA and 11BB provisions and did not consider binding High Court decisions in Ispat Industries and Tata Motors.

Key evidence and findings: The assessee had paid the differential duty voluntarily before the final assessment order was passed. The final assessment order did not result in any additional amount payable. The Revenue sought interest on the differential duty amount under Rule 7(4) read with section 11AB. The Tribunal dismissed the assessee's appeal, relying on the larger Bench decision in Cadbury India Ltd. and other Supreme Court judgments. The Court found that the Tribunal ignored binding High Court decisions and misapplied the larger Bench decision.

Application of law to facts: The Court applied the principle that interest liability under Rule 7(4) arises only when an amount is payable consequent to the final assessment order. Since the differential duty was paid before finalization, no amount was payable thereafter, and hence no interest liability arose. The Court relied on the binding precedents of Ispat Industries and Tata Motors, which held similarly.

Treatment of competing arguments: The Revenue argued that interest is payable even if the differential duty is paid before finalization, relying on the larger Bench decision in Cadbury India Ltd. and Supreme Court judgments interpreting interest provisions. The Court rejected this, holding that the larger Bench decision did not consider binding High Court precedents and that the statutory language mandates interest only on amounts payable consequent to final assessment. The assessee's argument, supported by binding precedents and the strict construction principle of tax statutes, was accepted.

Conclusions: The Court concluded that no interest is payable under Rule 7(4) on differential duty paid before finalization of provisional assessment. The liability to pay interest arises only if an amount remains payable after final assessment, which was not the case here.

Issue (ii): Whether the Tribunal erred in not following binding precedents of Ispat Industries and Tata Motors

Relevant legal framework and precedents: The decisions of the Bombay High Court in Ispat Industries and Tata Motors are binding precedents on the question of interest liability on differential duty paid prior to final assessment. Both decisions held that interest under Rule 7(4) and section 11AB is not payable if the differential duty is paid before finalization of assessment. The principle of judicial hierarchy mandates that coordinate benches and Tribunals follow binding High Court decisions unless overruled by a higher court or contrary to statutory provisions.

Court's interpretation and reasoning: The Court observed that the Tribunal dismissed the binding precedents as per incuriam, stating that relevant judgments were not brought to their notice. The Court held this approach to be erroneous and contrary to judicial discipline. It emphasized that a coordinate bench or Tribunal cannot disregard binding High Court decisions unless they are expressly overruled by a higher court or are in conflict with statutory provisions. The Court cited authoritative pronouncements reinforcing the binding nature of higher court decisions in the judicial hierarchy.

Key evidence and findings: The Tribunal's impugned order explicitly stated that the decisions in Ispat Industries and Tata Motors were per incuriam and declined to follow them. The Court found no justification for this, as these decisions were rendered by the same High Court and were binding. The Tribunal's reliance on the larger Bench decision of the Tribunal and subsequent judgments was not a valid ground to disregard binding High Court precedents.

Application of law to facts: The Court applied the principle of stare decisis and judicial hierarchy, holding that the Tribunal was bound to follow the High Court decisions in Ispat Industries and Tata Motors. The Tribunal's failure to do so was a legal error.

Treatment of competing arguments: The Revenue contended that the larger Bench decision and Supreme Court judgments justified the Tribunal's approach. The Court rejected this, holding that the larger Bench decision did not consider the binding High Court precedents and that the Supreme Court decisions relied upon did not mandate departure from the High Court rulings on the specific issue. The Court underscored the need for judicial discipline and adherence to binding precedents.

Conclusions: The Tribunal erred in not following the binding precedents of Ispat Industries and Tata Motors. The Court set aside the Tribunal's order on this ground and restored the binding effect of those precedents.

3. SIGNIFICANT HOLDINGS

"The liability to pay interest under Rule 7(4) arises only on any amount payable to the Central Government consequent to order for final assessment under subrule (3). If the differential duty is paid prior to finalization of assessment and no amount remains payable thereafter, then no interest liability arises."

"The Tribunal's dismissal of binding High Court decisions as per incuriam is erroneous and contrary to the principle of judicial hierarchy. A coordinate bench or Tribunal must follow binding precedents of the High Court unless expressly overruled or in conflict with statutory provisions."

"The larger Bench decision of the Tribunal in Cadbury India Ltd. cannot be applied to cases governed by the binding precedents of this Court in Ispat Industries and Tata Motors, which hold that interest is not payable if differential duty is paid before finalization of provisional assessment."

"When a statute levies a tax, the charging section creating liability must be strictly construed. Provisions for interest on delayed payment are substantive law and must be clearly provided. Interest cannot be levied merely on equitable considerations or absent explicit statutory provision."

"The Court answered the substantial questions of law in favour of the Assessee and against the Revenue, holding that no interest is payable on differential duty paid prior to finalization of provisional assessment and that the Tribunal erred in not following binding precedents."

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