1. Provisional assessment finalization for captive consumption units — Department demands duty for identified short-payment periods while ignoring excess duty paid during the same financial year. (Para 1 , 2 )
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2026 Supreme(Online)(Raj) 34187
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR
Sunil Beniwal, Arun Monga, JJ
Hindustan Zinc Limited – Appellant
Versus
Dy. Commissioner, Central Excise Division, Bhilwara – Respondent
D.B. Central/excise Appeal No. 3/2010
Important Points
When provisional assessment is finalized using annual costing, the net duty liability for the entire year must be determined by adjusting excess payments against short-payments, regardless of unjust enrichment rules applicable to cash refunds.
Subject
Tax - Central Excise
Act Referred
Central Excise Rules, 2002: R.7(3)
Central Excise Act, 1944: S.11B(2), S.11AA, S.11AB, S.11BB
Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000: R.8
Central Excise Act, 1944: S.11B(2), S.11AA, S.11AB, S.11BB
Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000: R.8
Headnote
(A) Provisional Assessment - Finalisation - Annual Costing (CAS-4) - Where the final assessable value is determined based on annual cost of production, the total duty liability for the financial year must be considered as a whole. The Department cannot bifurcate the year into separate periods to demand short-payment for one period while ignoring excess payments made in another. (Para 9, 10, 12)
(B) Adjustment of Duty vs. Refund - Unjust Enrichment - There is a clear distinction between a claim for a cash refund and the adjustment of duty already paid to determine net liability. Restrictions on refunds due to the incidence of duty being passed on to another person (unjust enrichment) do not preclude the adjustment of excess duty against short-payment to arrive at the actual duty liability. (Para 14, 15, 16)
(C) Interest - Provisional Assessment - Interest on excess duty is not payable if the relief granted is limited to adjustment and not a cash refund. Conversely, interest on short-payment cannot be recovered if the shortfall is eliminated through the adjustment of excess payments made during the same assessment period. (Para 18, 20)
Issues: Whether the Department can bifurcate a financial year to demand short-payment without adjusting excess duty paid in the same year, and whether such adjustment is permissible despite the principle of unjust enrichment.
(B) Adjustment of Duty vs. Refund - Unjust Enrichment - There is a clear distinction between a claim for a cash refund and the adjustment of duty already paid to determine net liability. Restrictions on refunds due to the incidence of duty being passed on to another person (unjust enrichment) do not preclude the adjustment of excess duty against short-payment to arrive at the actual duty liability. (Para 14, 15, 16)
(C) Interest - Provisional Assessment - Interest on excess duty is not payable if the relief granted is limited to adjustment and not a cash refund. Conversely, interest on short-payment cannot be recovered if the shortfall is eliminated through the adjustment of excess payments made during the same assessment period. (Para 18, 20)
Issues: Whether the Department can bifurcate a financial year to demand short-payment without adjusting excess duty paid in the same year, and whether such adjustment is permissible despite the principle of unjust enrichment.
Legal Category Hierarchy
Advocates:
For the Appellants/Petitioners: Sharad Kothari, Pranjul Mehta, Kalpit Shishodia
For the Respondents: Rishabh Dadhich
For the Appellants/Petitioners: Sharad Kothari, Pranjul Mehta, Kalpit Shishodia
For the Respondents: Rishabh Dadhich
Table of Contents
2. Appellant disputes bifurcation of annual assessment for short-payment recovery; Respondent contends that unjust enrichment bars adjustment of excess duty when incidence is passed to sister units. (Para 3 , 4 )
3. Annual provisional assessment finalized on the basis of aggregate cost of production must account for all duty payments made within that same yearly period without arbitrary bifurcation. (Para 9 , 10 , 15 )
4. Determining net duty liability upon finalization of provisional assessment requires offsetting total duty paid against total liability for the entire assessment period, regardless of period-wise variations. (Para 10 , 15 )
5. Demand for duty and interest is set aside; authorities are directed to perform a consolidated adjustment of overall duty liability without ordering a cash refund. (Para 21 , 22 , 23 , 24 )
6. Can the department bifurcate a financial year into separate periods for calculating short-payment and excess duty during provisional assessment finalization?
No. In the absence of specific statutory authority, the department cannot treat short-payment in one part of a financial year and excess payment in another as independent liabilities when assessable value is determined on an annual basis. (Para 7 , 11 , 12 )
7. Is an assessee entitled to adjust excess duty paid against duty short-paid during final assessment proceedings?
Yes. While refund of excess duty might be restricted by the principle of unjust enrichment, a claim for adjustment against existing liabilities is a separate process that must reflect the actual net duty payable for the assessment period. (Para 13 , 14 , 16 )
8. Does a claim for adjustment of duty preclude a claim for interest on the reconciled amount?
Yes. Interest under the rules is typically tied to refunds or payments due upon finalization. Where the court merely permits an adjustment of records rather than an actual cash refund, no interest on the excess amount is payable to the assessee. (Para 18 , 20 )
Order
Reportable
(per Sunil Beniwal,J.)
1. The present appeal has been filed against the order dated 14.05.2009 passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi, whereby the appeal preferred by the appellant against the demand of differential duty and interest arising out of the finalisation of provisional assessment for the period from 01.04.2004 to 31.03.2005 was dismissed.
2. The facts, as narrated by the appellant, are that the appellant is a mining unit of Hindustan Zinc Limited, engaged in the manufacture of lead and zinc concentrate. A substantial portion of the production is captively consumed by the smelting units of the company, while a part thereof is also exported. Since the determination of the assessable value requires ascertainment of the cost of production and the determination of the dry metric tonne (DMT) weight of the concentrate through laboratory testing, the appellant obtained permission for provisional assessment from the Assistant Commissioner, Central Excise Division, Bhilwara, vide order dated 25.04.2000. The provisional assessments were thereafter finalised on a yearly basis.
2.1. During the financial year 2004–05, the appellant initially adopted a provisional assessable value of Rs. 5,050/- per metric tonne, which was successively revised to Rs. 5,200/-, Rs. 5,875/- and Rs. 6,500/- per metric tonne in view of the increased costs arising from the expansion of the plant. Upon completion of the annual costing exercise, the assessable value was determined at Rs. 5,333/- per metric tonne, which was accepted by the Department during the adjudication proceedings.
2.2. The Deputy Commissioner, Central Excise Division, Bhilwara, vide Order-in-Original No. 57/05-06 (Prov. Ass.) dated 30.11.2005, finalised the provisional assessment and determined the total duty payable for the financial year 2004–05 at Rs. 33,65,43,811/-. The order also recorded that the appellant had deposited duty amounting to Rs. 34,19,68,596/-. Nevertheless, the adjudicating authority directed recovery of Rs. 1,16,53,609/- towards alleged short-payment of duty for the period from 01.04.2004 to 19.12.2004, together with interest under Rule 7(4) of the Central Excise Rules, 2002 (hereinafter referred to as the ‘Rules of 2002’). The appellant challenged the said demand, contending that the duty deposited exceeded the total liability determined upon finalisation of the provisional assessment.
2.3. The appeal preferred before the Commissioner of Central Excise (Appeals-II), Jaipur, was dismissed vide order dated 28.04.2006, inter alia, on the ground that the incidence of duty had been passed on to the purchaser and, consequently, no refund or adjustment was permissible. Thereafter, the appellant preferred an appeal before the Customs, Excise and Service Tax Appellate Tribunal, New Delhi, registered as Appeal No. E/2622/2006. The Tribunal also dismissed the appeal vide order dated 14.05.2009.
2.4. Hence, the present appeal.
3. Learned counsel for the appellant submitted that the Tribunal had erred in affirming the order dated 30.11.2005 passed by the Deputy Commissioner without properly appreciating the applicable legal provisions and the decisions rendered on the issue, including the Tribunal's own decision in the appellant's case vide Final Order No. 1199/06 dated 04.08.2006. He further submitted that the Deputy Commissioner had finalised the provisional assessment for the financial year 2004–05 under Rule 7(3) of the Rules of 2002, determining the total duty liability at Rs. 33,65,43,811/-, whereas the appellant had deposited Rs. 34,19,68,596/-. Despite the excess payment of Rs. 54,24,785/-, the authority divided the financial year into two periods and raised a demand of Rs. 1,16,53,609/- for the period from 01.04.2004 to 19.12.2004, while declining to adjust the excess duty paid during the subsequent period. He contended that provisional assessment was required to be finalised for the financial year as a whole,
