WHEN INTEREST IS NOT PAYABLE FOR SHORTFALL OF PAYMENT ON FINALIZATION OF ASSESSMENT

[Mr. M. GOVINDARAJAN]

PROVISIONAL ASSESSMENT:

Rule 7 of Central Excise Rules, 2002 deals with the provisional assessment.  According to Rule 7(1) if the assessee is not able to determine the value of excisable goods or determine the rate of duty appliocable thereto, he may request the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, in writing giving reasons for payment of duty on provisional basis. The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, may order allowing payment of duty on provisional basis at such rate or on such value as may be specified by him.  The assessee, according to Rule 7(2) may be allowed to pay duty on provisional basis, if the assessee executes a bond in the form prescribed by notification by the Board with  such surety or security in such amount as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case maybe, deem fit, binding the assessee for payment of difference between the amount of duty as may be finallya assessed and the amount of duty provisionally assessed.

FINAL ASSESSMENT:     

The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, according to Rule 7(3) shall pass order for final assessment as soon as may be, after the relevant information, as may be required for finalizing the assessment, is available, but within a period not exceeding six months from the date of communication of the order issued for provisional assessment.  This period may be extended by the Commissioner of Central Excise for a further period not exceeding six months on sufficient cause being shown and the reasons to be recorded in writing.   Beyond this period the Chief Commissioner of Central Excise is having power to extend as he may deem fit after showing the reasons for such extension to be recorded in writing.

ASSESSEE TO PAY INTEREST FOR SHORT PAYMENT:

The assessee shall be liable to pay interest on any amount payable to the Central Government consequent to order for final assessment at the rate specified by the Central Government by Notification issued under Section 11AA or Section 11AB of the Act from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof. 

ISSUE:          

The issue to be discussed in this article is when interest is not payable for shortfall of payment on finalization of assessment with reference to decided case law in ‘Toyota Kirloskar Auto Parts Private Limited V. Commissioner of Central Excise, LTU,. Bangalore’ – 2011 -TMI - 208245 - KARNATAKA HIGH COURT

CASE LAW:

In the above case law the assessees are the manufacturers of parts of motor vehicles such as front axle, read axle, propeller shaft, stiffner etc., which are cleared on payment of central excise duties.  The assessee requested the Assistant/Deputy Commissioner of the Central Excise, Large Tax payers Unit, Bangalore for assessment of goods manufactured and cleared by them to M/s Toyota Kirloaskar Motors Private Limited provisionally for the financial year 2007 – 08.  The order for provisional assessment was passed subject to executrion of bond of Rs.50 lakhs with bank guarantee.  Bonds were executed and the bank guarantee was furnished.  The assessee, thereafter, requested for finalization of the subject provisional assessment.

On considering the entire material available, the Assessing Authority passed the final order.  In respect of certain items, the provisional value adopted by the assessee is less than the final value arrived at which has resulted in short payment of duty of Rs.10,63,417/- and the same is demanded under Rule 7 of the Central Excise Rules, 2002.   This duty amount is appropriated against the duty paid by the assessee on 25.9.2008.  The Assessing Authority further demanded the payment of interest amounting to Rs.1,34,364/- for the short payment.

In respect of certain items the provisional value adopted by the assessee is more than the final value arrived at which has resulted in excess payment of duty of Rs.1,77,20,157/- and the same is confirmed.  The same is refundable by the Department for the financial year 2007 – 2008 since the same has already been passed on to M/s Toyota Kirloskar Motor and the same has been take into account.

The contention of the assessee that if the total duty paid provisionally is taken into consideration, there was no short payment of duty at all and they had paid the excise duty in excess of Rs.1,66,56,740/- and therefore the question of payment of interest on the ground of short payment of duty in respect of certain items would not arise, was not accepted by the Adjudicating Authority.   On appeal before Commissioner of Central Excise and before the Tribunal the assessee has not succeeded and hence came before the High Court.

The High Court observed that it is clear that after a final assessment order is passed, if the duty paid in terms of provisional assessment is less than the duty payable after the final assessment, the assessee is liable to pay the interest on the shortfall.   In the entire scheme of Rule 7, there is no indication that when an assessee is permitted to pay duty in pursuance of a provisional assessment order, if he is dealing with more than one goods, they have to be treated separately.  Even though the duty payable is to be calculated under each head of each case ultimately it is the total duty payable for all the goods whicha re the subject matter of the provisional assessment and final assessment which is to be taken into consideration.   If after taking into consideration the duty payable in respect of all the goods and the duty paid in pursuance of final assessment order, if still the assessee is due in any duty, then for the short fall in payment of duty, the assessee is liable to pay interest.

The High Court further observed that the assessee has to pay short fall of duty for certain items and he has paid excess of duty for certain items.  Before imposing interest, the High Court held that the authority should have deducted the short fall in the excess payment made.  If there is no short fall in payment of duty payment of interest does not arise.  The approach of the Authority is erroneous, unwarranted and unsupported by any statutory provisions.  The High Court further held that it is only when the duty is due and it is not paid within the stiuplated time and the duty is paid thereafter, in order to compensate the revenue, interest is imposed.  In this case the assessee paid a sum of Rs.1,66,56,740/- in excess which is to be refunded, he cannot be taxed with payment of excess duty in the form of interest.  The entire approach of trhe department is unreasonable, contrary to the scheme of the Act and negatives the principles underlying these provisions.  The High Court set aside the impugned order.