Liability of interest - Finalisation of provisional assessments
By Zia Uddin Alvi
STARTING from CCE Vs. Hindustan Zinc Ltd., 2000 (206) ELT - 978 (T) the decisions of the CESTAT have started veering around the proposition that interest is leviable U/R 7(4) Central Excise Rules 2002 w.e.f 1 st date of the month succeeding month in which goods were removed, ( cf. the month for which such amount is determined), on provisional payments of duty on amount payable on finalization u/r 7(3) of assessment made provisional u/r 7(1) & (2) Notable amongst such decisions are :-
- Bimetal Bearings Vs. CCE 2008 (229) ELT -315 (T).
- CCE Vs. Vindhya Telelinks Ltd. (2008-TIOL-865-CESTAT-DEL).
- Cadbury India Ltd., Vs. CCE Pune 2008-TIOL-1986-CESTAT T-LB
The drift was completed in Cadbury's case wherein the proposition was stamped with the seal of authority of three members Larger Bench. The catena of the cases noted below, having consistently held that the no interest was required to be paid if the differential duty amount was paid before the order of finalization of Assessment issued, was given a goodbye , on the specious ground that none of these decisions of the Tribunal had considered express language of rule 7(4).
- J.K Industries Ltd., Vs. CCE 2006 TIOL-1341-CESTAT –BANG.
- Rado Tyres Ltd., Vs. CCE (2007-TIOL-1638-CESTAT-BANG)
- MSEB Pole Factory Vs. CCE (2005-TIOL-1643-CESTAT-MUM).
- CCE Vs. Karnataka Vidyut Karkhane Ltd., (2008-TIOL-1138-CESTAT-BANG).
- Tata Motors Ltd., Vs. CCE (2008-TIOL-447-CESTAT-MUM).
- Ispat Industries Ltd. , Vs. CCE (2006-TIOL-1972-CESTAT-MUM).
- CCE Vs. Birla Ericson Optical Ltd., 2008 (227) ELT-44 (T).
Language of Sub-Rule 7(4) - Interpreation
Reference Month : To Be ‘Determined'
With utmost respect & reverence, it is submitted, as shall be demonstrated here-in-below, that none of the case law relied upon by the Revenue, cited in para-13 of Cadbury's case, even remotely support the Revenues case. Indeed they support the contrary. Not only that the Cadbury view is not borne of out by rule 7(4), rather such a view cannot be deduced therefrom except at the cost of violence to the very language thereof.
Much is sought to be made out of the word “the month” in the expression “the month for which such amount is determined ‘Whereas the key to the real meaning of the bid awkwardly employed language of sub-rule 7(4) lies in the word : “ determined ”. The employment of the word ‘determined for the month' w.e.f which interest would be payable is clearly indicative that the base date for computation of interest is not and indeed cannot be fixed w.r.t the month of clearance of goods but would vary from case to case. Rather, it has to be ‘DETERMINED' in the facts & circumstances of each case.
For, if the interest was required to be paid w.e.f a fixed date say payable w.e.f the 1 st of the month succeeding the month of removal of goods (and payment of provisionally computed duty) an altogether different but simple & clear expression would have been used. The expression which in the natural course would have been used, would have been as has been done in Customs Act 1962 vide Section 18(3) ; for instance:- .
“… from the first day of month succeeding the month in which goods were removed , and Or in which is duty is provisionally assessed/ paid ”.
Three/Four Potential Reference Months; Sub-rule 7(4)
It will be shown hereafter that unlike Customs Act (4) where the base date for computing interest is fixed, in Central Excise Rules it has been advisedly & deliberately kept open for being subsequently ‘ determined ' on case to case basis by the assessing authority taking into account, at the time of finalization of assessment. The events relevant & leading to finalization of assessment, throw open at least three/four competing and potential reference months for computing interest, –which could be considered as potential months wherein the differential duty, if any, ought to have been paid to the Government.
(a) As is commonly known provisional assessment is resorted to generally in cases where final price payable under the contract is neither fixed nor determinable but is contingent on some future event e.g on publication of major materials & labour –cost indices couple of months prior to delivery date in cases of Cost –Price- Adjustment clause. Once these cost indices are published & known, within a reasonable period the contractual price ought to be & can be finalized between the assessee and the buyer. This is the earliest point of time when differential duty could possibly be considered payable.
(b) The Second point of time when differential duty could be considered payable is when the Contractual price is actually finalized between assessee & buyer, in case where there is no unreasonable delay in such finalization.
(c) The next point in time span would be when the assessee raises the final Invoices on buyer, billing the differential amount of price, taxes & duties. Normally, and in the natural course it is in assessee's interest that no sooner contract price is finalized invoices be raised. This is the third probable point of time in the chronicle order when duty could be said to be payable. At least at this stage (if not earlier) jurisdictional ACCE/DCCE also ought to have been communicated by the Assessee.
(d) The last point of time is when the jurisdictional ACCE/DCCE passes the Assessment Finalization Order. Within Ten days of receipt of Finalization Order the assesee ought to pay differential duty, if any, lest he may be issued a SCN U/S 11A, as held by Supreme Court in Seraikella Glass Work's case.
Out of the aforesaid three/ four potential points, first & second may coincide and quickly succeeded by the third leaving hardly any gap in between or may be separated by a time gap. Also even after the fact of raising of final invoices would have been brought to the notice of jurisdictional authorities, ACCE/DCCE may take some time in passing the Assessment of Finalization Order.
It is in these cases considering the alacrity or delay on the part of assessee in finalizing the contractual prices, after such finalization became practicable and then in raising the invoices simultaneously informing jurisdictional authority, that the ACCE/DCCE, has to determine the month wherein the differential duty ought to have been paid by the assessee and the first date in succeeding month shall than constitute the base date for computing the interest.
LEGAL LIABILITY OF INTEREST ON DIFFERENTIAL DUTY
Having underscored the relevance of ‘determination' of the month wherein differential duty amount could be held payable to the practical dimensions of finalizations of provisional assessments, the issue of leviability of interest shall now be examined with reference to:-
(i) Principles underlying the charging of interest.
(ii) Statutory provision –sub-rule 7(4).
(iii) Other Provisions of law and precedents.
Provisions of law relating to levy of interest have been held by Supreme Court to be compensatory in nature, in - Central Provinces Mangnese Ore Co. Ltd., Vs. CIT (2002-TIOL-736-SC-IT) in contradistinction to penal. That is, they are not intended to punish any person, for failure or delay to make payments as due. But to compensate the other persons entitled to receive the payment, for the financial loss sustained by him on account of non-receipt timely of the sums of money due to him.
Thus on principles, for levy of interest, the assessee, in case of provisional assessment must be shown to have incurred legal liability to pay the differential amount of duty, arising out of and consequent to finalization of assessment, as on the date of clearance of goods –i.e alongwith payment of provisional duty. In other words, the assessee ought to have paid, under the Central Excise Act 1944 and Rules made thereunder, the differential amount of duty also at the time of removal goods.
The questions which than fall for consideration in this context would take the shape as follows:-
(a) Whether payment of duty at the time of clearance of goods on provisional price, duly approved by the jurisdictional ACCE/DCCE, vide his Provisional Assessment Order passed u/r 7(2) Central Excise Rules 2002 was or not ! in accordance with law ?
(b) Was the amount of duty actually paid at the time of clearance of goods, ‘equal' to or ‘short' vis-à-vis duty amount ought to have been paid under the law at the relevant time ?
(c) Who, in the case of provisional assessment, is the legal authority vested with the power of determining the assessable value U/S 4 Central Excise Act 1944 and consequently the amount of duty payable under the law, at the time of removal of goods?
(d) At what point of time the liability arises, on the part of assessee to pay to the Ex-Chequer (or conversely, Ex-chequer's right arises to receive) the amount of differential duty.
The answers to the aforesaid questions would be as follows:-
Provisional Duty Payment! Not or In accordance with law.
Rule 6 Central Excise Rules 2002 prescribes, “the assessee shall himself assess the duty payable on any excisable goods' , excluding cigarettes as stipulated in the provisio to the rule.
Rule -7 caters to a situation where, “the assessee is unable to determine the value of goods”. On his request u/r 7(1) with duly substantiated reasons to the satisfaction ACCE/DCCE the latter, “ order (s) allowing payment of duty on provisional basis ...on such value as may be specified by him, on execution of “bond with surety / security binding the assessee for payment of difference between the amount of duty as may be finally assessed and the amount of duty provisionally assessed .
Is not such provisional payment by an assessee, of duty-made pursuant to an order by jurisdictional ACCE/DCCE , on the value specified by the latter in accordance with law?
Amount of Duty Ought To Have Been Paid.
(a) Is not the amount of duty paid by the assessee as duty computed w.r.t to value specified by the jurisdictional ACCE/DCCE by an order issued under Central Excise Rules 2002, after applying his mind to all the facts of case and documents on record , what ought to have paid , at the relevant time under the law ?
(b) While on the issue of amount ought to have been paid It would be advisable to pause and refer to the Apex Court's three Judge Bench ruling on interpretation of expression levy, assessment , short ‘levied' & short paid in the leading case of Asstt. Collector Vs. National Tobacco Co, (2002-TIOL-172-SC-CX) which has been referred to and relied upon over thirty seven year in various cases, notably in the following .
- Somayya & Organics Vs. State of U.P (2002-TIOL-651-SC-STATE-CX-CB)
- Collector Vs. Vazir Sultan Tobacco Co. (2002-TIOL-215-SC-CX).
- Peekay Re-rlloing Mills Vs. Asstt. Commr. (2007-TIOL-43-SC-CT)
(c) The Apex Court observed in National Tobacco case .
“Section -4, dealing with the determination of value for the purpose of the duty, also seems to us to imply the existence of a quasi-judicial power to assess the duty payable in cases of dispute. Collection seems to be termed used for a stage subsequent to assessment”, ( para-17).
“We think that although the connotation of the term ‘levy' seems wider than that of assessment”, which it includes yet it does not seem to us to extend to collection” (para -20).
“ it is the process of assessment that really determines whether the levy is short or complete”. ( para-21).
(d) From the above, it is clear that shortness and completeness of payment of duty can be measured at the yard stick of assessment only. At the time of clearance of goods, there was an assessment (provisional) by competent authority after examination of all the material facts and documents and if duty was paid according to such assessment, it does not lie in the mouth of revenue to term , it, ‘ short payment of duty' .
(e) Quite significantly and interestingly in all the cases (referred to in para-1 above) where revenue's contention about interpretation of rule 7(4) has been upheld , it is on the ground that initial payment at the time of removal of goods based on provisional price was “ Short Payment of duty”, e.g:-
(i) “ short payments were to be taken into account for working out the interest payable thereon on the basis of the due dates, on which the payments ought to have been made , …”( para-5) CCE Vs. HZL 2006 ( ELT) - 978- (T) (emphasis supplied).
(ii) “If the assessee had paid lesser amount of duty , that what he was liable to pay at the time of provisional assessment , he cannot be absolved of the liability to pay interest on the differential amount when the final assessment is made. In the case of short payment the person is always liable to pay interest on the differential duty amount as if he had never paid correct duty ”. ( para-5). CCE Vs. Vindhya Telelink Ltd., (2008-TIOL-865-CESTAT-DEL) (emphasis supplied).
(iii) if the duty provisionally assessed for January 2008 is Rs.1,000/- and the same is paid in January 2008, but on final assessment in August 2008, the duty for January 2008 is Rs. 2000... However since Rs.1000/- is already paid in January 2008, interest is payable only on the remainder of Rs.1,000/- from February 2008 till the date of payment (para-21 Cadbury India Ltd. Vs. CCE 2008-TIOL-1986-CESTAT T-LB emphasis supplied)
(f) Thus the clear, unequivocal & comprehensive reply to the Question No:1(a) & 1(b) framed above would be:-
The payment of duty at the time of removal of goods, as provisionally assessed by jurisdictional ACCE/DCCE vide order passed u/r 7(2) is the duty paid in accordance with law , as ought to have been paid at the relevant time ( removal of goods) under, the Act & Rules made thereunder and hence can by no means be termed ‘short', since measure of short or complete payment of duty is the duty as assessed, under law by competent authority.
Provisional Duty Determined by Competent Authority Under Law.
If the computation of duty were by the assessee himself u/r 6 Central Excise Rules , he could have been faulted with the allegation that duty assessed is short of what was payable , however in case of provisional assessment both value as well as rate are determined by jurisdictional ACCE/DCCE u/r 7(1) C.E Rules 2002. Once the jurisdictional ACCE/DCCE himself is assessing the duty ( provisionally) payable at the time of removal goods , he can't be allowed to somersault and allege that such duty directed to be paid by him was short of the amount of duty payable under the law .
Liability To Pay Differential Duty; Point of time.
(a) The next question is as to at what point of time liability to pay differential amount of duty arises under the law?
The view finding favour with Revenue, being that the total price, including differential duty element, being transaction value U/S 4, the duty thereon ought to have been paid right on the date of removal.
According to a combined reading of Sub-Section 4(1) (a) with 4(3)(d) the transaction value, it is submitted, includes only that part of price which is “ actually paid or payable for the goods when sold ” (i.e at the time of removal of goods) and does not include the differential price , if any, payable latter , since the expression, “ whether payable at the time of sale or at any other time”, does not apply to price but to “amounts” in addition to the amount charged as price'.
Also in so far as the transaction at the time goods are sold (i.e cleared /dispatched from assessee's place of removal) is concerned , it is the provisional price only which is the value of goods payable by the buyer to assesee for sale. Since the differential amount is not payable contractually by the buyer, at the time of sale or removal of goods. .
(b) As regards point of time when the liability to pay differential duty payable on finalization of assessment arises, the following decisions of Supreme Court are directly on the point.
(i) In Seraikella Glass Works Vs CCE (2002-TIOL-321-SC-CUS), the Supreme Court observed as under:-
“After final assessment, copy of the order on the return field by the assessee has to be sent to him. “ Duty has to be paid by the assessee on the basis of final assessment within ten days' time from the receipt of return. No question of giving any notice under Section 11A arises in such as case. It is only when after final assessment and payment of duties ,it is found that there has been short levy or non levy of duty the Excise Officer is empowered to take proceeding under Section 11A within period of limitiaotn after issuing a Show Cause Notice ”, (para-17) emphasis supplied)
Similarly, in CCE Vs. ITC (2006-TIOL-141-SC-CX), the Supreme Court has categorically ruled as :-
“21. concededly in terms of the provisions of the Act and the Rules framed there-under , the amount becomes payable only in the event , the assessee does not deposit the amount levied within a period of ten days from the date of completion of the order of assessment….”.
22. Whereas provisional duty is levied in terms of sub-rule (1) of 9B final assessment is contemplated under sub-rule 9B (5) thereof…………..”;
24 The question came up for consideration before the Court in Saraikella Glass Works Vs. CCE…….”
26. The said decision was noted by a Division Bench of this court in M/s. Duncan Industries Ltd., Vs. CCE (2006-TIOL-13-SC-MISC).
(c) From the above, it is clear on the authority of the above rulings of Supreme Court that the differential duty gets levied only on passing of the assessment finalization order u/r 7(3) only and prior to this such amount is not payable and as such the question of terming if ‘short levied' ‘or' ‘short paid' ; simply does not arise.
(d) Since on the legal authority, the differential duty is held to be not payable or due to be paid by the assessee , and Ex-Chequer not entitled to receive the same prior to passing of Assessment Finalization Order the question of leviability of interest simply doesn't and cannot arise form any date prior to Assessment Finalization.
STATUTORY PROVISION SUB-RULE 7(4) : INTEREST ON DIFFERENTIAL DUTY AMOUNT
The issue shall now be examined in the context of statutory provision viz rule 7(4), itself. In so far as the expression “ from the first of the month succeeding the month for which the amount is determined , till the date of payment”, is concerned , relevance of ‘determination of the month' for the purpose of computation of interest stands already analyzed and explained vide para 2.0 above.
Vociferous arguments were advanced by Revenue as recorded in para 13(f) , (g) & (h) and dealt in para with 25 to 28 of Cadbury's case about the two disjunctive commas'-before and after the phrase ‘consequent to order of final assessment under sub-rule (3)'. It has been sought to be interpretated by Revenue that the expression consequent to order of final assessment', merely indicates the time as to when the interest would be payable and has no bearing on the quantum of interest.
Most respectfully, it is submitted as is very apparent and obvious the word ‘CONSEQUENT' would only denominate the time of payment. But the real question is time of payment of what? The language on plain reading indicates that the word “Consequent”, qualifies & relates to “ the amount payable to the Central Government', i.e the differential duty amount and not the amount ‘interest'. If the said expression was intended to be related to the payment of interest than there ought to have been yet another ‘comma' after the word ‘interest' in sub rule 7(4). For a better understanding the two punctuations existing and suggested are laid down below:
“ The assessee shall be liable to pay interest on the amount payable to the Central Government , consequent to order for final assessment under sub-rule (3)” ( existing)
“The assessee shall be liable to pay interest, on the amount payable to the Central Govt. , consequent to order for final assessment under sub-rule (3) ( suggested).
There cannot be any quarrel to the statement that the differential duty amount becomes payable only consequent to order for final assessment, as has since been authoritatively held by Supreme Court ( Ref: Seraikella & ITC Cases para 4.6 above). Even otherwise unless liability to differential duty is determined and quantified by final assessment, there could have not been any question of quantification of interest and much less of payment. Accordingly it was totally absurd to suggest that the expression “ consequent to ….”, was used in sub- rule 7(4) to declare that interest was not payable prior to order for final assessment u/r 7(3).
In view of foregoing it is most respectfully submitted that reliance sought to placed in Cadbury's case on :-
ETA Engg. Ltd., Vs. CCE (2004-TIOL-959-CESTAT-DEL-LB).
is totally out of place.
LIABILITY OF INTEREST U/R 7(4): OTHER PROVISONS OF LAW AND PRECEDENTS
At the out set it is submitted that interpretation , sought to be put on sub-rule 7(4) by Revenue and upheld in Cadbury's case is totally outside the subordinate legislative competence of rule making power conferred vide sub –section 37(2) (ibb) CEA 1944 which reads as under :-
“ Provide for charging or payment of interest on the differential amount of duty which becomes payable or refundable upon finalization of assessment of all or any class of provisional assessments”.
The enabling provisions clearly & unequivocally spells out and defines the point of time when, under law, the liability to pay differential amount of duty raises its head for the first time , i.e “upon finalization of …provisional assessment”.
No disjunctive comma business here! When the Act itself concedes the arising of legal liability to pay differential duty only on finalization of provisional assessments, the interest thereon not be claimed from a point anterior to it , point except under the law of jungle.
LIABILITY OF INTEREST U/R 7(4); RELEVANCE OF SS-3, 11A, 11AA & 11AB.
(a) Both under legal principles underlying charge of interest as well as under Section 11AA/.11AB the interest is chargeable only when either the duty is NOT / Short paid , Not / short levied.
(b) In so far the question of payment of duty by Assessee or Collection thereof Revenue is concerned, the right to collection or liability to payment arises only when the duty is properly levied under law .
(Ref the charging Section -3, CEA 1944, “there shall be levied and collected in such a manner as may be prescribed …..”).
(c) As held by Supreme Court in National Tobaccos' case followed ever since; ‘levy' is not legally complete till the stage of assessment. Revenue have no right to collect the duty untill it stand legally assessed. Untill then there is no liability on the part of assessee to pay and he can't be slapped with the allegation of non / short payment of duty. It is precisely for this legally balanced and consistent frame of things that the Supreme Court very categorically said in :
Seraikella Glass Works Vs. CCE (2002-TIOL-321-SC-CUS) and
CCE Vs. ITC Ltd., (2006-TIOL-141-SC-CX),
That until assessee fails to pay within ten days the differential duty on finalization of assessment, “No question of giving any notice under Section 11A arises in this case“, ( para 16 & 18)
In ITC's case the Supreme Court ruled thus, “A proceeding under Section 11A of the Act cannot therefore be initiated without completing the assessment proceeding.
(d) The law protects the accrual of revenue even in cases of genuine default by the apparatus of levy & collection of Central Excise duties (Deptt.). Accordingly, not only where assessee fails timely to pay duty properly levied even in cases where Central Excise Officer fails to levy correctly the duty, it is the assessee who has to compensate the Ex-chequer for the delay in collection of duty, short levied ( subject of course to limitation). Thus even where after finalization of assessment and payment of duty by the assessee it is found within legal limitation period that the there was under-assessment , not only such short levied duty can be recovered u/s 11A but interest thereon U/s AA.
(e) Thus technically and mechanically the key to determine the base date for computation of interest lies in the answer to the question as to when a Show Cause Notice for recovery of duty not / short levied or not / short paid can or cannot be issued. Thus it is only at the stage of finalization of provisional assessment which is the point of time the liability to pay differential duty get crystallized against assessee. This again illustrate and amplifies the legal clarity and wisdom of the Supreme Court's decision in:
Seraikella Glass Works Vs. CCE 1997 (91) ELT 497 (S.C) = (2002-TIOL-321-SC-CUS) and
CCE Vs. ITC Ltd., 2006 (203) ELT 532, = (2006-TIOL-141-SC-CX)
U.O.I Vs. Godrej & Boyce Mfg Co. Ltd., 1989 (44) ELT-3 ( Bom).
Nayak Paper Industries Vs. U.O.I 1991 (50) ELT-31 ( Cal .)
Ponds (I) Ltd., Vs. Asstt. Collector 1994 (73) ELT-272 ( Mad. )
ITC Ltd., Vs. CCE 2004 (170) ELT-33 (T-LB) = (2004-TIOL-569-CESTAT-DEL-LB)
(f) In the following rulings , it has been held by Supreme Court various High Court and Tribunal ( LB) that there is no authority in law for issuance of Show Cause Notice , prior to finalization of provisional assessment, and SCN issued if any is bad in law and liable to be struck down since there can not be any question of short levy prior to issuance of Order for finalization of assessment.
IN THE PASSING RULE 7(2) BOND VALUE –INTEREST NOT INCLUDED.
It is worth while to note that rule 7(2) requires execution of bond,” binding the assesee for payment of difference between the amount of duty as may be finally assessed and the amount of duty provisionally assessed”, meaning thereby that on finalization of assessment the differential duty amount of duty only would be payable. If indeed the liability of interest also was intended to be fastened and fixed on assessee w.e.f date of removal , and such interest become due immediately on passing the order of finalization of assessment , the bond value would have included besides differential -duty -amount the unavoidable interest thereon as well.
Obliteration of Difference Between Absence and Existence of Provisional Assessment
If indeed interest was payable even in case of finalization of provisional assessment on differential duty amount w.e.f date of removal as held in Cadbury's case than in effect there is no difference vis-à-vis a fact situation of short levy/ payment of duty without provisional assessment, where similar interest is payable as held in Lucas TVS Vs. CCE (2008-TIOL-575-CESTAT-MAD). Then the question arises as to what is the purpose of all the fuss of provisional assessment u/r -7 and the elaborate paper work envisaged thereunder?
Legislative Policy Respecting Charging of Interest.
S-11AB and S-1AA together with S-11A as they stand worded , as on date, after having undergone various adhoc amendments reveal the legislative , intent, respecting charging of interest. Of the two, while Section -11 AB an overriding provision stipulates charging of interest in situations where short levy/ payment or non levy/ payment arises out of suppression of facts , misstatement , fraud & collusion ;, all cases other than involving first provisio to S-11A are covered by S-11AA. U/s 11AB the reference date relates to the month wherein the duty found short-levied/ paid, non levied/paid, ought to have been paid. The reference date U/S 11A understandably is the date of determination of subsequently of short-non levy/payment of duty.
Obviously, in case of provisional assessment the amount payable( though can not be termed as short levy) is found and determined later without invoking proviso to S-11A.