ORDER
Gowri Shankar, Member (T)
1. SKF Bearings India Ltd., the manufacturer of ball and roller bearings and parts thereof had cleared some quantity of the bearings that it manufactured out of the parts were cleared without payment of duty in terms of the exemption contained in Notifications 217/85, 69/86 and 326/86. These notifications granted exemptions respectively to bearings used in the manufacture of internal combustion engines, power driven pumps, and power trailers subject to fulfilment of the conditions contained in Chapter X of the rules. The assessee also availed of exemption under Notification 217/86, which exempts from duty goods manufactured in a factory and utilised in the factory for manufacture of further dutiable goods. The notice issued to it alleged that the exemption contained in Notification 217/86 would not be available to the parts that were utilised to make the bearings which were cleared without payment of duty in terms of any of the three notifications that have been referred above, pointing out that the condition subject to which the exemption contained in Notification 217/86 would be available – viz. that the final product should be liable to duty had not been complied with. The assessee replied to the notice. The Deputy Commissioner had not accepted these contentions and confirmed the demand for duty of Rs. 28,89,228/-. He also demanded interest at 24% per annum under Section 11AA. The assessee appealed this order. The Commissioner (Appeals) confirmed the liability to duty, but held that the provisions of Section 11AA will only be applicable to cases, where duty has been determined before the date of enactment of the Finance Bill, 1995 and therefore would not apply in the case before him where it has been demanded by an order passed in January, 2001. The appeal by the assessee and the appeal by the Commissioner are against this order. The assessee questions the liability to payment of duty and the Commissioner, the finding that interest is not payable.
2. The contention of the Counsel for the assessee is that it took Modvat credit of the duty paid on the goods required for the manufacture of parts of the bearings and from time to time reversed the credit taken on so much of these inputs as were utilised in the manufacture of the parts which were in turn utilised in the manufacture of the exempted categories of bearings. If duty is now held to be payable, Modvat credit would be available. Since part of the credit has been reversed, it amounts in effect to payment of duty; hence except to the extent of Rs. 7,91,293/- the difference between the Modvat credit availed and that reversed on the final product interest is payable. If it is payable, it is payable only on this amount. In any event, interest is not payable for two reasons – firstly, the notice itself does not demand payment of interest, and, secondly, the provisions of Section 11AA will not apply prior to its enactment on 26-5-1995.
3. The departmental representative contends that the act of the assessee in reversing Modvat credit did not constitute payment of duty due on the parts of the ball bearings, which were not entitled to the exemption contained in Notification 217/86. What it did was to reverse the credit that it took, that is very different from payment of duty on the finished goods i.e. parts. That duty has not yet been paid and therefore the provisions of Section 11AA will clearly apply. He further contends that the law does not require issue of a notice for recovery of interest. The section itself makes it clear that where in terms of an order issued under Sub-section (2) of Section 11AA, duty is determined, the assessee has to pay interest if he fails to pay duty so determined within three months. He further points out that the provisions of Section 11A did not cover interest and limits to duty.
4. After considering the arguments, we do not find it possible to say that what the assessee paid was duty. It took Modvat credit of the duty paid on all inputs that it received in its factory and from time to time, made entries in the RG 23A register, “expunged” some of the credit. It is not disputed by the Counsel for the assessee that the amounts that were “expunged” were equal to the credit taken of the duty paid on the inputs that were utilised in the manufacture of parts on which duty was not paid in terms of Notification 217/86. Therefore, although ultimately the credit was reversed, the duty is demanded by denying the benefit of Notification 217/86, the nature of the reversal does not indicate to be payment of duty. When the assessee made the entries in the RG 23A register, it did not perceive it to be payment of duty on goods; it considered that it was reversing the credit. The fact that, in the reply to the notice, it took the stand that the benefit of Notification 217/86 would be available, supports this view. It is therefore not possible for us to conclude that the reversal of Modvat credit is to be equated with payment of duty on the parts.
5. Section 11AA reads as follows:
Section 11AA Interest on Delayed Payment of Duty. [(1) Subject to the provisions contained in Section 11AB, where a person, chargeable with duty determined under Sub-section (2) of Section 11A, fails to pay such duty within three months from the date of such determination, he shall pay, in addition to the duty, interest [at such rate not below ten per cent, and not exceeding thirty-six per cent, per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette], on such duty from the date immediately after the expiry of the said period of three months till the date of payment of such duty:
Provided that where a person chargeable with duty determined under Sub-section (2) of Section 11A before the date on which the Finance Bill, 1995 receives the assent of the President, fails to pay such duty within three months from such date, then, such person shall be liable to pay interest under this section from the date immediately after three months from such date, till the date of payment of such duty.
Explanation 1 : Where the duty determined to be payable is reduced by the Commissioner (Appeals), Appellate Tribunal or, as the case may be, the court, the date of such determination shall be the date on which an amount of duty is first determined to be payable.
Explanation 2 : Where the duty determined to be payable is increased or further increased by the Commissioner (Appeals), Appellate Tribunal or, as the case may be, the court, the date of such determination shall be, –
(a) for the amount of duty first determined to be payable, the date on which the duty is so determined; (b) for the amount of increased duty, the date of order by which the increased amount of duty is first determined to be payable; (c) for the amount of further increase of duty, the date of order on which the duty is so further increased.]
6. A reading of these provisions makes it clear that the provision of Section 11AB will apply in cases where duty confirmed under Section 11A(2) is in pursuance of a notice in which the extended period of limitation has been invoked. Section 11AA will apply ”subject to the provisions contained in Section 11AB.” The provisions of Section 11AB are quite different in character. The rate of interest that applies under it will not be less than 10% and may go up to 30% per annum. The interest accrues from the first day of the month succeeding the month in which duty has not been paid. The provisions of Section 11AA apply in other cases. In our view, the provisions of Sub-section (2) of Section 11AB (which makes the Section 11AB(1) inapplicable where the duty became payable before the date on which the Finance Bill, 1995 is enacted) will not apply to Section 11AA. As we have noted, the two provisions are designed to deal with different circumstances and the conditional clauses in Section 11AA does not mean that the provisions of Sub-section (2) of Section 11AB will apply to it. On the contrary, the proviso under Section 11AA itself gives an indication that where duty has been demanded under Section 11AA before the Finance Bill was enacted, and the assessee fails to pay duty within three months from that date, he will be liable to pay interest. Section 11AA will have to be considered independently of the provisions of Section 11AB.
7. We are also of the view that the failure to demand interest in the notice issued to the assessee does not result in interest being demanded contrary to law. From the words of Section 11AA it appears to us that the liability to duty runs concurrently to liability to interest. If the duty is not paid within the period mentioned therein, it becomes due, and no separate notice need to be issued or adjudication carried out to confirm such interest.
8. Doubtless, as the Counsel for the appellant contends the net effect of the reversal of the credit at this stage is equivalent to payment of duty. The assessee would be entitled to take credit and use the same amount of credit towards payment of duty on the parts of the bearings. Therefore, solely for the purposes of demand of duty, the amount that has been reversed shall be taken into account. The interest is payable on the amount that is left after deduction of this amount until 12-5-2001 and 15% from then onwards until payment, unless the interest has been altered in the meantime.
9. The Counsel for the assessee at this stage brings to our notice a Trade Notice 214/88 issued by the Additional Collector of the Central Excise, Pune. This trade notice says that the exemption contained in Notification 217/85 would apply to “parts which go into the manufacture of component parts that are in turn used in the manufacture of diesel operated I.C. engines.” He contends that the trade notice is binding on the department and contrary view cannot now be taken. The departmental representative has really no answer. He however says that the trade notice might have been withdrawn in the meantime to suggest that the matter may be remanded to the original authority to consider this aspect since it is not raised. We do not think that this is justified. It is now settled law that the department cannot take a stand contrary to a trade notice that it issued which is beneficial to the assessee. Therefore, whatever the correctness of the contents of this trade notice, the provisions of that be given effect insofar as Notification 217/85 is concerned. It would follow from this that the demand for duty and for interest would be restricted to the parts that were utilised in the manufacture of bearings that were related to the other two notifications. The matter is remanded to determine the quantum of duty and interest. For this purpose alone, the appeal is allowed and the matter is remanded to the Assistant Commissioner.