Custom, Excise & Service Tax Tribunal
Bharat Heavy Electricals Ltd vs C.C.E., Bhopal on 15 February, 2011
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R.K.Puram, New Delhi COURT-I Date of hearing: 15.2.2011 Date of decision: 13.6. 2011 Central Excise Appeal No.1205 of 2009 [Arising out of order in appeal No.132/BPL/2009 dated 04.02.2009 passed by Commissioner , Customs & Central Excise (Appeals), Bhopal. For Approval and Signature: Honble Shri Justice R.M.S. Khandeparkar, President Honble Shri Rakesh Kumar, Technical Member 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982? Yes 2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? yes 3 Whether their Lordships wish to see the fair copy of the Order? Seen 4 Whether Order is to be circulated to the Departmental authorities? Yes Bharat Heavy Electricals Ltd. . Appellant Vs. C.C.E., Bhopal . Respondent
Appearance:
Shri Z.U. Alvi, Advocate for the appellants Shri V. Choudhary, Authorized Departmental Representative (SDR) for the Revenue Coram: Honble Shri Justice R.M.S. Khandeparkar, President Honble Shri Rakesh Kumar, Technical Member Oral Order No.____________________ Per Shri Justice R.M.S. Khandeparkar:
We have heard at length the learned Advocate for the appellants and the DR for the respondent, in terms of the order dated 9.11.2010 in Writ Petition No.11005 of 2010 passed by the Honble Madhya Pradesh High Court. We have also perused the written submissions filed on behalf of both the parties. The present appeal arises from the order passed by the Commissioner (Appeals), Bhopal on 4.2.2009. By the impugned order, the Commissioner (Appeals) has dismissed the appeal filed by the appellants against the order dated 30.10.2008 of Deputy Commissioner, Bhopal.
2. The appellants supply power generation and transmission & distribution equipment to Indian Railways under contracts and such supplies are subject to price variation clause. The final contractual price is determined after indices of major materials, labour for the relevant month prior to the contractual delivery dates are available and thus nearly after some months consequent to the supply or execution of the contract that the final contractual price rates are computed and are accordingly, paid. The goods at the time of dispatch are billed provisionally on the previously approved price and the excise duty is accordingly paid. On receipt of Railway Board approval to the final price, adjustment bills are raised and consequently, supplementary invoices are issued and differential duty, if any, is paid and thus, the assessments are finalised. Similarly, in relation to the period from 1.4.2002 to 31.3.06, the assessmenst came to be finalised and on account of delayed payment of duty, the appellants were compelled to pay the interest amounting to Rs.13,49,08,554/-. The present appeal seeks to challenge the said liability to pay interest on the delayed payment of duty.
3. Learned Advocate for the appellants while assailing the order relating to the fixation of liability to pay the interest submitted that the order of finalising assessment itself is bad in law as the basic principles of natural justice stood violated inasmuch as that the authority proceeded to finalise the assessment without issuing any show cause notice disclosing the amount and the basis for demand. The impugned order which confirms the demand of interest being based on the order passed in the finalisation of the assessment, the same is also bad in law and should be set aside. Reliance is sought to be placed in the decision of the Supreme Court in the matter of A.C.C.E., Calcutta vs. National Tobacco Co. of India Ltd. reported in 1978 (20) ELT 416 while drawing our attention specifically to para 17, 20 and 21 of the said decision.
4. The said contentions are sought to be countered by the SDR while contending that in terms of the provision of law applicable to the facts of the case, there is no provision for issuance of show cause notice prior to the finalisation of the assessment. Besides, the assessment has been done essentially on the basis of materials furnished by the appellants themselves. He further submitted that it was for the appellants themselves to ascertain the value for the assessment of the goods cleared by them as well as to quantify the duty thereon. Being so, it cannot be said that there was any violation of principles of natural justice in the matter of finalisation of assessment.
5. The provisionsof law relating to the assessment of duty are to be found under Rule 6 and 7 of the Central Excise Rules, 2002. Accordingly, the assessee himself is required to assess the duty payable on the excisable goods. When the assessee is unable to determine the value of the excisable goods or to determine the rate of duty applicable thereto, he can certainly request the Excise officer for an order allowing him to pay the duty on the provisional basis. In case, the provisional assessment is allowed, then the assessee has to execute a bond in the prescribed form with surety to ensure the payment of difference between the amount of duty as per the final assessment and the amount of duty provisionally assessed. Rule 7(3) of the said Rules clearly provides that the Assistant Commissioner of Central Excise or Deputy Commissioner, as the case may be shall pass an order as soon as may be, after the relevant information, as may be required for finalising assessment is made available but within a period not exceeding six months from the order of the communication of the order of provisional assessment provided that on sufficient cause being shown by the assessee and the reason being recorded in writing , the Commissioner may extend the said period, not exceeding six months, and the Chief Commissioner may extend such period as he may deem fit.
6. The provisions of law comprised under Rule 7(3), therefore, nowhere provides for any show cause notice as such to the assessee prior to finalisation of the assessment. However, since the proceedings before such authority are in the nature of quasi-judicial, it is certainly expected that the authority substantially complies with the requirements of the principles of natural justice.
7. It is however, to be noted that the principles of natural justice do not necessarily require show cause notice in each and every case. The requirement of the notice would depend upon the facts of each case and in the absence of specific provision requiring issuance of such notice, there would be no obligation for the authority to issue a show cause notice in each and every case. The law in that regard is well settled. For the purpose of compliance of basic principles of natural justice in such cases it would be certainly necessary that the person against whom the proceedings are to be conducted should be put to notice about the materials which are to be used for deciding the matter against him. In a case where the materials to be used for deciding the matter are furnished by the assessee himself and apart from such materials, no other material is used for deciding the matter, the question of issuance of any show cause notice as such does not arise. The insistence for show cause notice in such cases would really be a futile exercise.
8. A provisional assessment can be for various reasons and one of them being possibly on account of price variation of the goods which are the subject matter of the assessment, as is the case in the matter in hand. The provisional assessment is to be based on the price disclosed by the assessee unless there is reason to take a different view. In case of finalisation also, it primarily depends upon materials furnished by the assessee in relation to the variation of the price of the goods. Once it is not in dispute that the finalisation of the assessment has been in terms of the variation of the price of the goods as disclosed by the assessee, it cannot be said that there was violation of principles of natural justice for want of show cause notice, nor it can be said that no fair opportunity was given to the assessee to defend.
9. The Apex Court in National Tobacco Co. of India Ltd. case was dealing with the matter relating to the cigarettes cleared by the assessee. Therein, the notices came to be issued to the assessee for short-levy in respect of some brand of cigarettes cleared from the factory. The notices were challenged by the company before Kolkata High Court in Writ jurisdiction. The High Court quashed the notices while holding that the determination as to whether the wholesale market exists at the site of the factory or the premises of the manufacturing or production etc. or its nearest wholesale market or price at which the goods or goods like kind and quality are capable of being sold must necessarily be a complicated question and must be determined carefully upon the evidence and not arbitrarily. Such determination cannot wholly be made ex-parte i.e. to show behind the back of the assessee. A satisfactory determination can only be made by giving all information to the assessee after giving the assessee an opportunity of establishing his own point of view or checking and or challenging any material or evidence upon which the Excise authorities wish to depend. There was no appeal filed against such order of the High Court and it had attained finality and was binding upon the parties. In the background of the said facts when fresh notice was issued by the Department, its validity was being considered by the Apex Court. While dealing with the same in para 16, 20 and 21 of their judgment, the Apex Court observed as under:
16. It will be noticed that in Chapter III, the term? assessment was used only in the former Rule 10-B corresponding to the present Rule 9-B, while dealing with provisional assessment of duty. But Rule 52 shows that an assessment is obligatory before every removal of manufactured goods. The rules, however, neither specify the kind of notice which should precede assessment nor lay down the need to pass an assessment order. All we can say is that rules of natural justice have to be observed for, as was held by this Court in K.T.M. Nair v. State of Kerala, 1961 (3) SCR 77 at p. 94=(AIR 1961 SC 552) the assessment of a tax on person or property is at least of a quasi-judicial character.
10. Plain reading of the above ruling of the Apex Court would disclose that the rules of natural justice are required to be observed while finalizing the assessment. As already observed above, compliance of principles of natural justice does not depend solely upon the issuance of show cause notice, which is one of facets thereof, but the requirement thereof, in the absence of statutory provision preventing issuance of notice, would depend upon facts and circumstances of each case. Considering the provision of law and the facts in the case in hand as already seen above, we do not find that it was necessary for the authority to issue any show cause notice in the matter in hand. The challenge in that regard therefore, is to be rejected.
11. As regards the merits of the case, it is the contention on behalf of the appellants that the case of the appellants is not covered by the decision of the Apex Court in the matter of Commissioner of Central Excise, Pune vs. S.K.F. India Ltd. reported in 2009 (239) ELT 385. According to the learned Advocate for the appellants, S.K.F. India Ltd. ruling is applicable only in cases where there is short-payment of duty which is recoverable under Section 11A and it would not apply to the differential duty recoverable under Rule 7(3) of the said Rules and the occasion to demand the duty would not arise unless the assessment is finalized.
12. While elaborating the contention on this aspect, the learned Advocate for the appellants submitted that Section 3 of the Central Excise Act, 1944 provides that duties shall be levied and collected in such manner as prescribed. Referring to the decision of the Apex Court in National Tobacco Co. of India Ltd., the Apex Court clearly held that the process of assessment determines whether the levy is short or complete. It is only upon determination of the value of the goods finally on ascertaining the duty that the assessment can be said to be finalized and duty payable can be quantified at a stage of collection thereof which arises subsequent to assessment. Though the term levy seems to be wider than the term assessment, it does not seem to include the stage of collection. According to the learned Advocate, therefore, the provisionally assessed duty can by no means be termed as short-payment of duty since at the time of clearance of goods there was provisional assessment by the competent authority after examination of the material facts and ascertainment as to whether the duty paid was in accordance with such assessment.
13. Since the occasion to pay differential duty arises after finalization of the assessment, question of imposition of interest on such amount cannot arise. The amount which becomes payable after finalisation of assessment cannot be said to be one which was due and payable prior to such finalisation of assessment and as such, classifying the same as short-levy or short-payment cannot arise. There cannot be demand for payment of differential duty prior to finalisation of such assessment and for the same reason, there cannot be collection of such differential duty before levy in that regard is ascertained. Reliance is sought to be placed in that regard in the decision in the matter of Serai Kella Glass Works Pvt. Ltd. vs C.C.E., Patna reported 1997 (91) ELT 497, Commissioner of Central Excise, Mumbai vs. ITC Ltd. reported in 1006 (203) ELT 532. It is further contention that it is only at the stage of finalisation of provisional assessment which is the point of time of obligation to pay differential duty gets crystallized against the assessee.
14. On the other hand, the SDR submitted that sub-rule (4) of Rule 7 mandates charging of different interest on the differential amount of duty payable on finalisation of assessment from the first day of the month succeeding the month for which such amount is determined till the date of payment thereon. The provision is totally unambiguous and provides that the interest is chargeable from the first day of the month following the month for which the duty is determined. It is well settled that the payment of duty is linked to the act of removal of excisable goods. In case of provisional assessment, the date of levy and the due date for payment remains the same, and only concession which is granted is that there could be payment of differential duty, if any, along with interest as envisaged under Rule 7(4) consequent to the finalisation of the assessment and on ascertaining the liability for differential amount of duty. It was further submitted by the SDR that incidence of levy being on manufacture of excisable goods, it is collected on the date of removal of the goods, the due date of payment is as prescribed under Rule 8. The provisional assessment does not disturb the factum of levy and relevant due date for payment of duty and Rule 7(4) only grants concession subject to payment of interest.
15. It was further submitted by the SDR that as rightly pointed out by the learned Advocate for the appellants that demand for interest is compensatory in nature and is not penal. The provision regarding finalisation of assessment does not extend the date of levy but it merely takes care of a situation where the final assessment is not feasible at the time of removal of the goods. However, such finalisation of assessment relates back to date of removal of the goods though actual calculation in that regard is done at a later point of time. Reliance is sought to be placed in the decision of the Larger Bench of the Tribunal in the matter of Cadbury India Ltd. vs. C.C.E. Pune I reported in 2008 (232) ELT 224.
16. Placing reliance in the decision in the matter of S.K.F. India Ltd. it is submitted that though the decision does not deal with the issue of charging interest on payment of duty on finalisation of assessment, it does cover cases where the duty is paid at any subsequent date by the assessee on account of revision of price. The provisional assessment in the case in hand was resorted to because the appellants were not certain about the price at the time of removal of the goods. In other words, the provisional price was subjected to revision. Resort to Rule 7 protects the assessee from penal action which can be attracted for failure to pay the appropriate duty at the time of removal of the goods. Merely because the appellants took shelter of the provision of law comprised under Rule 7 that cannot exonerate the payment of interest on the delayed payment of duty. The situation in the case in hand is akin to the price revision at a future date and the same is fully covered by the decision of the Apex Court in S.K.F. India Ltd. case. Undisputedly, the differential duty was paid subsequent to the date of payment due at the time of removal of the goods. Finsalisation of the assessment does not alter the procedure of levy and collection of duty consequent to price variation.
17. In rejoinder, it was sought to be contended on behalf of the appellants that sub-rule (4) of Rule 7 has been enacted in exercise of delegated legislative power, in terms of Section 37(1) (ibb) of the said Act and therefore, the authority for charging interest under the said provision shall remain confined to the amount which becomes payable consequent to the finalisation of the assessment and cannot extend the amount already paid prior to the finalisation of the assessment. In other words, while interpreting the Rule 7(4), the expression month for which such amount is determined is necessarily to be understood to mean any month subsequent to the passing of the assessment of finalisation order and not prior thereto.
18. There can hardly be any dispute that Central Excise Rules, 2002 have been framed in exercise of the powers conferred under Section 37 of the Central Excise Act, 1944. Sub-section thereof clearly provides that the Central Government may make rules including rules conferring powers to issue Notification with retrospective effect under those rules to carry into effect the purposes of the said Act. Sub-section 2(ibb) provides that in particular and without prejudice to the generality of the power granted under sub-section of Section 37, such rules may provide for charging of interest on the differential amount of duty which becomes payable or refundable upon finalization of all or any class of provisional assessment. In other words, apart from generality of power enshrined under sub-section (1) of Section 37 of the said Act, Sub-section 2(ibb) of Section 37 specifically provides that the Rules may provide for charging interest on differential amount of duty becoming payable consequent to the finalization of provisional assessment. The provision of law comprised thereunder nowhere specifies such Rules shall restrict the levy of interest for the period consequent to finalization of the assessement. Rather it specifies that the Rules may provide for interest on the differential amount of duty becoming payable consequent upon the finalization of assessment. The expression becoming payable would obviously relate to the date on which the duty was required to be paid. Considering the provisions of Section 4 of the said Act, the duty becomes payable on each removal of the goods consequent to the manufacture thereof. Being so, the expression becomes payable under Section 37(2)(ibb) would relate to the date on which the duty was payable i.e. at the time of clearance of the goods in terms of the said Act. Merely because the differential amount of duty is ascertained consequent to the finalization of assessment, the due date for payment of such amount never stands changed or extended. It would always relate to the date of removal of the goods thereof. It is only the quantification of the differential amount of duty is ascertained consequent to the finalization of assessment. And that too merely because the assessee was not able to ascertain the exact quantum of duty in the absence of sufficient material to finalize the valuation of the goods at the time of clearance of goods. That would not extend or change the due date for payment of duty. The due date for payment of duty is statutorily fixed being the date of removal of the goods consequent to the manufacture thereof, as the same cannot be changed by misinterpreting the provisions relating to the power of the Government to frame the Rules.
19. Besides, Rule 7(4) clearly provides that the assessee shall be liable to pay interest on any amount payable to the Central Government consequent to order for finalization of assessment under sub-rule (3) at the rate specified by the Central Government by a Notification issued under Section 11AA or Section 11AB of the said Act from the first day of the month succeeding the month for which such amount is determined till the date of payment thereof. The provisions therefore, specifically states that the interest liability will commence from the month succeeding the month for which such amount is determined. The expression for refers to the month for which the amount is determined pursuant to finalization of assessment. Apparently, it discloses that the interest liability would commence from the month succeeding the day on which the duty was due and payable in relation to the goods cleared. In case the contention of the Advocate for the appellants is to be accepted then the expression used in Rule 7(4) would have been in instead of for, with reference to the month following the day on which duty was due.
20. In ITC Ltd. case, the issue related to the hasty action on the part of the Department in issuing show cause notice for recovery of differential duty even before finalization of the provisional assessment. It was in totally different set of facts that the Honble Supreme Court held that the Department was not justified in issuing show cause notice without finalizing the provisional assessment. That is not the case in the matter in hand.
21. The decision in Serai Kella Glass Works Pvt. Ltd. was essential relating to the limitation which the Honble High Court should observe while dealing with revenue matters in exercise of writ jurisdiction and when adequate alternative remedy is available. Therein, the Honble Supreme Court after taking note of the fact observed that after final assessment, a copy of the order on the return filed by the assessee has to be sent to him. The duty has to be paid by the assessee on the basis of the final assessment within 10 days time from the receipt of the return. In those circumstances question issuance of any show cause notice under Section 11A of the said Act does not arise. It is only when the assessee fails to make payment in terms of the finalization of the assessment and if there is short-levy or non-levy of duty, the Department is empowered to take proceedings under Section 11A. Obviously, the conditions attached for the exercise of powers thereunder will have to be complied with. The said decision obviously has no application to the case in hand.
22. Taking into consideration the law laid down by the Apex Court in SKF India Ltd. case, the provision of law referred herein above, we find no case for interference in the impugned order and hence the appeal fails and is hereby dismissed.
(Pronounced in the open Court on . 2011)
(Justice R.M.S. Khandeparkar)
President
Rakesh Kumar)
Technical Member
scd/
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