No liability to pay interest in a revenue-neutral situation

[CA Bimal Jain]

The CESTAT, Kolkata in M/S. JAI BALAJI INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, BOLPUR - 2023 (6) TMI 1102 - CESTAT KOLKATA set aside the order confirming interest on differential duty and held that where the differential duty paid by the assessee is available as CENVAT credit to the Assessee’s sister concern then it is a revenue-neutral situation. Thus, as duty was not actually payable, the payment of interest does not arise in the case of revenue neutral situation.

Facts:

M/s Jai Balaji Industries Limited (“the Appellant”) is engaged in manufacturing of iron and steel products. The Appellant sells finished products to independent buyers at the factory gate at which the Appellant was paying duty on the transaction value as determined in terms of section 4(1)(a) of the Central Excise Act, 1944 (“the Excise Act”).

Besides it, the Appellant also transferred products to its sister units on which the Appellant was paying duty in terms of Rule 4 of the Central Excise Valuation Rules, 2000 (“the Excise Rules”) which was being used by the sister units as input of production.

Show Cause Notice dated September 10, 2010 (“the SCN”) was issued to the Appellant demanding interest for the period FY 2006-07 to FY 2008-09 (“the Impugned Period”).

The Appellant filed reply to the SCN contesting the payment of duty but the demand of interest of INR 1,26,23,235 was confirmed and penalties were imposed vide order dated March 18, 2011 (“the Impugned Order”). Aggrieved by the Impugned Order, the Appellant filed an appeal before the CESTAT.

The Appellant contended that interest on payment of additional duty does not arise as no duty was legally payable and further contended that any amount of duty that the Appellant would have paid, it would be available as CENVAT credit to the sister units and since the whole exercise was revenue neutral the Appellant was not liable to pay any interest.

Issue:

Whether the Appellant is liable to pay interest on the amount of differential duty paid which is available as CENVAT Credit to the Appellant’s Sister Concern?

Held:

The CESTAT, Kolkata in M/S. JAI BALAJI INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, BOLPUR - 2023 (6) TMI 1102 - CESTAT KOLKATA held as under:

• Noted that the Appellant was not liable to pay duty as per the terms of Rule 8 of the Excise Rules.
• Relied on the judgement of the Hon’ble Gujarat High Court in COMMISSIONER OF CENTRAL EXCISE & CUSTOMS, VADODARA-II VERSUS M/S GUJARAT NARMADA FERTILIZERS CO LTD - 2012 (4) TMI 309 - GUJARAT HIGH COURT wherein the court held that if the Appellant was not liable to pay the duty, then no interest would be payable by the Appellant.
• Observed that the criterion laid down by the CESTAT, New Delhi for determining a revenue-neutral situation in the case of JAY YUHSHIN LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, NEW DELHI - 2000 (7) TMI 105 - CEGAT, COURT NO. I, NEW DELHI was fulfilled by the Appellant.
• Further relied on the judgement of the Hon’ble Gujarat High Court in COMMR. OF C. EX. & CUS., VADODARA-II VERSUS INDEOS ABS LIMITED - 2010 (3) TMI 656 - GUJARAT HIGH COURT  wherein the court held that in case the sister concern was eligible for Modvat Credit on the goods cleared then the whole exercise would be construed to be revenue neutral.
• Held that, it was a revenue-neutral situation, no duty is to be paid by the Appellant and therefore no question of payment of interest arises.
• Setting aside the impugned orders.

Relevant Provisions:

Section 4(1)(a) of the Excise Act:

“Valuation of Exciseable goods for purposes of charging of duty of excise

4(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall.

(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value.”

Rule 4 of the Excise Rules:

“The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable to the proper officer.”

Rule 8 of the Excise Rules:

“Where whole or part of the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value of such goods that are consumed shall be one hundred and ten per cent of the cost of production or manufacture of such goods”

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