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11D not applicable when 10% reversed recovered

AIT News Network

NEW DELHI. Larger Bench ruling AIT-2006-205-CESTAT of the Tribunal has come as a breather for hundreds of manufacturers who were slapped demand notices by Excise Authorities for recovery of 10% collected by them for buyers on account of credit reversed by them on clearances of exempted goods. The Larger Bench confirmed the view taken by the Tribunal in the case of Nu-Wave Shoes.

The following questions was referred to Larger Bench in AIT-2006-163-CESTAT and AIT-2006-162-CESTAT :

“Whether the amount of 8% debited from the RG-23A part II in terms of the provisions of rule 57CC(1) and collected from the customers is required to be deposited with the Govt. in terms of the provisions of Section 11D of the Central Excise Act?”

“Whether the amount of 8% reversed/paid on the sale value of the exempted goods in accordance with Rule 57CC/Rule 57AD of Central Excise Rules, 1944/Rule 6 of Cenvat Credit Rules 2001/2002, by the appellants, and collected from the buyers attracts provisions of Section 11D of the Central Excise Act, 1944?”

T H E R U L I N G:

· It is not in dispute that the assessees had paid 8% of the value of the goods in terms of Rule 57CC at the time of removal of the goods from the factory. The amounts so paid are the amounts recovered by them from their buyers. Thus , in the present cases, no amounts collected from the buyers remain unpaid to the revenue , irrespective of whether those amounts were represented in the sales documents as duty or not . In fact, the invoices referred to the payment in different terms such as "8% reversal of assessable value", "8% value", "8% duty etc." As the amounts recovered from the buyers are not retained by the assessees, the question of deposit cannot arise, whether under Section 11D or any other provision. A reading of Section 11D makes it clear that what is required is that amounts collected as duty should not be retained by the manufacturers and should be deposited with the revenue. This was the view that Division Bench took in the case of Nu-Wave Shoes AIT-2001-18-CESTAT.

· The scheme of Central Excise duty payment is that a manufacturer removed goods from the factory of production after payment of duty. While selling the goods, the manufacturer recovered the duty so paid. In doing so, an assessee is recouping the tax already paid. The arrangement is not that the assessee first collected the tax from the buyer of the goods and then remits the amount to the government. Section 11D has to be read keeping this scheme in view. Therefore, the provisions for "every person who is liable to pay duty.......and has collected any amount from the buyer of any goods in any manner representing as duty of excise, shall forthwith pay the amount so collected to the credit to the Central Government" has application only when equivalent duty had not been deposited at the time of removal of the goods. The scheme of the law is that manufacturers shall not collect amounts falsely representing them as central excise duty and retain them, thus, unjustly, benefiting themselves. In the present cases, (irrespective of whether the 8% payments were duty or not) since the 8% amount remain already paid to the revenue, and no amount is retained by the assessee, Section 11D has no application.

( Click here for full text of ruling AIT-2006-205-CESTAT )