No interest payable when differential duty paid on price revision in contract

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No interest payable when differential duty paid on price revision in contract

AIT News Network

NEW DELHI.A ruling of Customs Excise & Service Tax Tribunal AIT-2007-329-CESTAT has come as a mega relief to the manufactures who were slapped notices by excise authorities demanding interest on differential excise duty paid by issue of supplementary invoices as a result of price revision/variation in contract price.

According to the ruling no interest is payable under Section 11AB of Central Excise Act or Rule 8 of Central Excise Rules in such cases when original assessment were not provisional. As a result the demands issued to the manufacturers on the issue are going to be quashed.

The issue in dispute was liability of the assessee to pay interest. The impugned order of the Commissioner had considered the claim of the revenue for interest in great detail. The order reached a finding that claim for interest under Rule 8(3) or under Section 11AB is not sustainable. The Commissioner in the impugned Order noted as under:

In the contract/purchase orders, there is a price variation clause where the price of the finished goods is liable to vary as per the price of the raw materials. The respondent has been paying duty on the clearance of the said excisable goods as per the contract price. Whenever the price is increased, the Electricity Board inform the respondent about the variation. The respondent raises a supplementary invoice and pays the differential duty. A show cause notice was issued asking the respondent to pay interest under Rule 8(3) of Central Excise Rules, 2002 read with Section 11AB of the Central Excise Act, 1944.
The differential excise duty depending upon the price increase was paid by the respondent for the months of July 2004 to May 2005. No suppression of facts or fraud on the part of the respondent was alleged in the show cause notice nor is there any such evidence forthcoming. When the respondent pays duty at the time of clearance of goods, the duty is paid on the correct assessable value and correct rate of duty. Hence, there is no question of any short payment of duty at the material time. The respondent has no means of knowing whether the price of goods would increase and if so, to what extent and at what time. Hence, the respondent cannot be faulted for not paying the correct amount of duty at the time of clearance of goods.
In the case of AIT-2003-41-HC, the Hon'ble High Court of Bombay has held that if the unforeseen circumstances beyond the control of the assessee result in non-payment of duty, such circumstances cannot be construed to mean that the appellant had failed to pay the excise duty on the due date.
In the case of AIT-2003-40-CESTAT, the Tribunal has held that if the liability to pay duty did not arise as a result of any act or omission by the appellant, then the provisions of Section 11AB will not apply. The liability to duty did not arise as a result of any of the acts or omissions of the appellant which was contrary to law.

The appeal of the Department was dismissed by the Tribunal.

(Click here for full text of ruling AIT-2007-329-CESTAT)