HINDUSTAN ZINC LTD. vs DY.COMMISSIONER C.E.DIV.BHILWARA

[2026:RJ-JD:51538-DB]
HIGH COURT OF JUDICATURE FOR RAJASTHAN
AT JODHPUR
D.B. Central/excise Appeal No. 3/2010
CNR: RJHC010416872009 | URN: EXCIA / 4U / 2010
Hindustan Zinc Limited Registered Office at Yashad Bhawan
Udaipur.
Unit : rampura Agucha Mines, P.O. Agucha District : Bhilwara
Through Shri V.V. Nandawat S/o Ambalal Ji, aged 46 years,
Associated Senior General Manager (Finance).
----Appellant
Versus
Dy. Commissioner, Central Excise Division, Bhilwara
----Respondent
For Appellant(s) : Mr. Sharad Kothari
Mr. Pranjul Mehta
Mr. Kalpit Shishodia
For Respondent(s) : Mr. Rishabh Dadhich
HON'BLE MR. JUSTICE ARUN MONGA
HON'BLE MR. JUSTICE SUNIL BENIWAL
Order
Reportable
Conclusion of Arguments &
Reserved on : 09/10/2026
Pronounced on : 16/10/2026
(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
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(2 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
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
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(3 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
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.
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(4 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
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,
particularly when the relevant cost of production could be
ascertained only at the end of the year, and that no provision of
law authorised such a bifurcation.
3.1. He further submitted that the demand was inconsistent with
the final determination of duty liability recorded in the order-in-
original. If the additional demand of Rs. 1,16,53,609/- were added
to the duty liability already determined, the total liability would
exceed the amount legally payable on the basis of the applicable
rate of duty and the assessable value determined in accordance
with the Board's Circular No. 692/09/2003-CX dated 13.02.2003
and the prescribed CAS-4 methodology. He also contended that
the Department's method of computing period-wise short-
payment by applying the annual cost of production, without
corresponding consideration of the cost applicable to the
respective periods, was erroneous. The appellant had
progressively revised the provisional assessable value in response
to the increase in production costs during the latter part of the
financial year, hence, the alleged short-payment could not be
determined by comparing figures calculated on inconsistent bases.
3.2. He also submitted that the bar against refund on the ground
of unjust enrichment had been erroneously invoked to deny inter
se adjustment of excess duty paid against any short-payment
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(5 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
during the relevant financial year. The entire quantity of
concentrate was transferred to the appellant company's captive
smelting units, where the duty paid by the mining unit was
available as CENVAT credit. Since both units belonged to the same
company, the incidence of duty had not been passed on to any
other person within the meaning of Section 11B(2) of the Central
Excise Act, 1944 (hereinafter referred to as the ‘Act of 1944’). He
contended that the excess duty paid was, therefore, liable to be
adjusted against any alleged short-payment and that only the net
amount, if any, could be recovered from the appellant. He also
submitted that the he is not pressing for refund of the amount
rather he merely seeks adjustment of the amount as admittedly
the duty paid by the appellant for the subsequent period from
20.12.2024 to 31.03.2005 was in excess of the actual duty
payable.
3.3. He further relied upon Final Order No. 447/2008-Excise
dated 10.07.2008 passed by the Tribunal in Appeal No.
E/769/2007 in the appellant's own case, wherein the availability of
CENVAT credit to the company's smelting units was relied upon in
considering the revenue-neutral nature of the transaction. He also
placed reliance on the following judgments for his submissions:-
(i) Toyota Kirloskar Auto Parts Pvt. Ltd. v. C.C.E,
LTU, Bangalore; C.E.A. No. 103/2010 , decided on
13.10.2011 – Karnataka High Court
(ii) The Principal Commissioner, CGST and Central
Excise Headquarters, Bhopal v. Godrej Consumer
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(6 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
Products Ltd., C.E.A No.13/2019, decided on 23.04.2019
– Madhya Pradesh High Court
(iii) Hindustan Zinc Ltd. v. Commissioner of Central
Excise, Jaipur, Final Order No. A/53134/2015- EX
(DB) , decided on 06.10.2015 – Customs, Excise and Service
Tax Appellate Tribunal Principal Bench, New Delhi
3.4. Based on the above submissions, learned counsel prayed
that the impugned order dated 14.05.2009 passed by the Tribunal
and the order-in-original dated 30.11.2005 be quashed and set
aside.
4. Per contra, learned counsel for the respondent submitted
that the adjudicating authority had rightly determined the duty
liability for the financial year 2004–05 at Rs. 33,65,43,811/- and
identified a short-payment of Rs. 1,16,53,609/- for the period
from 01.04.2004 to 19.12.2004 and an excess payment of Rs.
1,70,78,391/- for the subsequent period from 20.12.2004 to
31.03.2005. He further submitted that the appellant’s claim for
adjustment of the excess duty against the short-payment was not
admissible, as the appellant had failed to establish that the
incidence of excess duty had not been passed on to its captive
smelting units. The smelting units had already availed CENVAT
credit of the duty paid on the concentrate. He also pointed out
that, by letter dated 14.09.2005, the appellant had stated that it
would not claim a refund of the excess duty since its smelting
units had already availed the corresponding credit. In these
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(7 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
circumstances, the appellant was not entitled to the adjustment
sought.
4.1. He further submitted that the claim was governed by Rule
7(3) read with Rule 7(6) of the Rules of 2002, which prescribed
the conditions subject to which any refund arising upon finalisation
of provisional assessment could be paid to the assessee. Since the
appellant had passed on the incidence of duty to its sister concern
units and the recipient units had availed the corresponding
CENVAT credit, the excess amount could neither be refunded nor
adjusted against the demand. He contended that the adjudicating
authority and the Commissioner (Appeals) had duly considered
this aspect and that the Tribunal had also examined the relevant
facts before correctly rejecting the appellant's appeal.
4.2. He also submitted that the assessable value of the captively
consumed concentrate had been determined in accordance with
the applicable costing methodology under CAS-4, as contemplated
by Board's Circular No. 692/08/2003-CX dated 13.02.2003, read
with Rule 8 of the Central Excise Valuation (Determination of Price
of Excisable Goods) Rules, 2000. The determination of the short-
payment and rejection of the claim for adjustment were,
therefore, justified under the applicable statutory provisions and in
view of the fact that the incidence of excess duty had already
been passed on to the recipient units.
4.3. He lastly submitted that the impugned order passed by the
Tribunal did not warrant interference and that the appeal is devoid
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(8 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
of merit. Accordingly, he prayed that the appeal be dismissed and
the impugned orders be maintained.
5. Heard learned counsel for the parties and perused the
material available on record.
6. The present excise appeal was admitted on 13.01.2010 and
following questions of law were framed:-
(i) Whether the period of one year can be bifurcated in two
imaginary parts and can it be held that assesse has short paid the
duty in the first part and paid excess duty in the other?
(ii) Whether the duty paid in excess under Rule 7 of Central
Excise Rules, 2002 can be adjusted against the duty short paid?
(iii) Whether the assesse is entitled to claim interest on the
amount of duty paid in excess?
ISSUE NO.1 :
7. The controversy arising in the present appeal requires
consideration of the manner in which the duty liability is to be
determined upon finalisation of provisional assessment. The
appellant was permitted to pay duty provisionally because the
assessable value of the lead and zinc concentrate depended upon
the determination of the cost of production and other relevant
particulars. The final assessable value was determined upon
completion of the annual costing exercise in accordance with
CAS-4. The question, therefore, is whether, after adopting the
annual cost of production for determining the assessable value,
the Department could treat the short-payment during one part of
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(9 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
the financial year and the excess payment during the remaining
part as separate and independent liabilities.
8. Rule 7 of the Rules of 2002 provides for provisional
assessment where the assessee is unable to determine the value
of excisable goods or the rate of duty applicable thereto, which
reads as under:-
“ 7. Provisional assessment.—
1. Where the assessee is unable to determine the value
of excisable goods or determine the rate of duty
applicable thereto, he may request the Assistant
Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be, in
writing giving reasons for payment of duty on provisional
basis and the Assistant Commissioner of Central Excise
or the Deputy Commissioner of Central Excise, as the
case may be, may order allowing payment of duty on
provisional basis at such rate or on such value as may be
specified by him.
2. The payment of duty on provisional basis may be
allowed, if the assessee executes a bond in the form
prescribed by notification by the Board with such surety
or security in such amount as the Assistant Commissioner
of Central Excise or the Deputy Commissioner of Central
Excise, as the case may be, deem fit, binding the assessee
for payment of difference between the amount of duty as
may be finally assessed and the amount of duty
provisionally assessed.
3. The Assistant Commissioner of Central Excise or
the Deputy Commissioner of Central Excise, as the case
may be, shall pass order for final assessment, as soon as
may be, after the relevant information, as may be required
for finalizing the assessment, is available, but within a
period not exceeding six months from the date of the
communication of the order issued under sub-rule (1):
Provided that the period specified in this sub-rule may, on
sufficient cause being shown and the reasons to be
recorded in writing, be extended by the Commissioner of
Central Excise for a further period not exceeding six
months and by the Chief Commissioner of Central Excise
for such further period as he may deem fit.
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(10 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
4. The assessee shall be liable to pay interest on any
amount payable to Central Government, consequent to
order for final assessment under sub-rule (3), at the rate
specified by the Central Government by notification
issued under section 11AA or section 11 AB of the Act
from the first day of the month succeeding the month for
which such amount is determined, till the date of payment
thereof.
5. Where the assessee is entitled to a refund
consequent to order for final assessment under sub-rule
(3), subject to sub-rule (6), there shall be paid an interest
on such refund at the rate specified by the Central
Government by notification issued under section 11 BB
of the Act from the first day of the month succeeding the
month for which such refund is determined, till the date
of refund.
6. Any amount of refund determined under sub-rule
(3) shall be credited to the Fund:
Provided that the amount of refund, instead of being
credited to the Fund, be paid to the applicant, if such
amount is relatable to-
(a) the duty of excise paid by the manufacturer, if he
had not passed on the incidence of such duty to any
other person; or
(b) the duty of excise borne by the buyer, if he had
not passed on the incidence of such duty to any other
person.”
9. The statutory scheme thus contemplates that provisional
assessment is followed by final assessment upon the availability of
the relevant information, and that the difference between the duty
provisionally assessed and the duty finally assessed is to be
determined. The assessment cannot be finalised by adopting one
method for determining the assessable value and another,
inconsistent method for calculating the resulting duty liability.
9.1. In Toyota Kirloskar Auto Parts Pvt. Ltd. (supra), the
Karnataka High Court considered the consequences of finalisation
of provisional assessment where excess duty had been paid on
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(11 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
certain goods and a short-payment had been identified in respect
of others. The Court emphasised that the total duty liability had to
be considered before interest could be levied on an alleged
shortfall. The overall position could not be ignored by isolating
individual components of the assessment.
9.2. The same principle finds support in Godrej Consumer
Products Ltd. (supra) wherein the Madhya Pradesh High Court
considered the adjustment of excess duty paid during certain
months against short-paid duty during other months where the
assessable value was determined on the basis of annual CAS-4
costing. The Court held that when annual cost of production
formed the basis for determining the assessable value, the overall
duty liability had to be calculated after taking into account the
duty already paid during the relevant year. The Department could
not rely upon annual costing for determining the value of goods
while selectively considering only those months in which a short-
payment was noticed.
9.3. The principle emerging from these decisions is that the
method adopted for determining the assessable value must be
applied consistently in determining the corresponding duty
liability. Where the final assessment is founded upon annual cost
of production, the duty already paid during the relevant
assessment period cannot be disregarded merely because the
payments made during different portions of that period disclose
different results.
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(12 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
10. In the present case, the Deputy Commissioner determined
the total duty liability for the financial year 2004–05 at
Rs.33,65,43,811/-, whereas the appellant had deposited
Rs.34,19,68,596/-. The appellant had thus deposited an amount
exceeding the final annual duty liability by Rs.54,24,785/-. The
adjudicating authority nevertheless treated Rs.1,16,53,609/- as
short-paid duty for the period from 01.04.2004 to 19.12.2004,
while separately recognising excess payment of Rs.1,70,78,391/-
for the period from 20.12.2004 to 31.03.2005.
10.1. Such an approach fails to give effect to the overall result of
the final assessment. Once the assessable value has been
determined on the basis of annual costing, the Department cannot
disregard the excess payment made during the remainder of the
same financial year while enforcing the demand arising from the
earlier period. The payments made during the year must be taken
into account in arriving at the actual duty liability.
10.2. It is clarified that the conclusion does not rest upon a
general proposition that duty payable on every clearance must
invariably be assessed only on an annual basis. The relevant
consideration is that, in the present case, provisional assessment
was permitted and the final assessable value was determined
through an annual costing exercise. The Department was,
therefore, required to give effect to that determination
consistently while calculating the net duty liability.
11. A specific query was put to learned counsel for the
respondent to point out any statutory provision under the Rules of
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(13 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
2002, or any other applicable law, authorising the Department to
bifurcate the assessment for the entire financial year into two
separate periods and determine short-payment for one period
without accounting for the excess duty paid during the remaining
period of the same financial year. However, learned counsel for the
respondent failed to point out any such statutory provision. In the
absence of any enabling provision, such bifurcation, particularly
when the assessable value was determined on the basis of annual
costing, cannot be sustained in law.
12. Accordingly, Issue No. 1 is answered in favour of the
appellant. In the facts of the present case, the short-payment and
excess payment could not lawfully be treated as independent
liabilities without considering the overall duty position for the
financial year 2004–05.
ISSUE NO.2 :
13. The answer to the question as to whether the duty paid in
excess under Rule 7 of the Rules of 2002 can be adjusted against
the duty short-paid, depends upon the distinction between a claim
for refund of excess duty and the adjustment of duty already paid
while determining the net liability upon finalisation of provisional
assessment.
14. Sub-rule (6) of Rule 7 of the Rules of 2002 provides, in
substance, that an amount determined as refundable upon
finalisation of provisional assessment is ordinarily to be credited to
the Consumer Welfare Fund, subject to the prescribed exceptions
where the incidence of duty has not been passed on to another
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(14 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
person. The provision governs the manner in which a refund is to
be dealt with. The question in the present appeal, however, is not
whether the appellant is entitled to receive the excess amount in
cash, but whether the amount already deposited must be taken
into account in determining the net duty payable.
14.1. In the case of Associated Cement Co. Ltd. v.
Commercial Tax Officer, Kota & Ors.; (1981) 4 SCC 578 , the
Hon’ble Supreme Court explained the distinction between charging
provisions and machinery provisions of a taxing statute and while
discussing about their interpretation, observed as under:
“28. XXX XXX XXX
It is settled law that a distinction has to be made by court while
interpreting the provisions of a taxing statute between charging
provisions which impose the charge to tax and machinery
provisions which provide the machinery for the quantification
of the tax and the levying and collection of the tax so imposed.
While charging provisions are construed strictly, machinery
sections are not generally subject to a rigorous construction.
The courts are expected to construe the machinery sections in
such a manner that a charge to tax is not defeated.
XXX XXX XXX
33........It is the duty of the Court while interpreting the
machinery provisions of a taxing statute to give effect to its
manifest purpose having a full view of it. Wherever the
intention to impose liability is clear courts ought to have no
hesitation in giving what we may call a common-sense
interpretation to the machinery sections so that the charge
does not fail.”
Keeping in view the above observations, this Court is of the
opinion that the provisions governing the finalisation of provisional
assessment must be interpreted in a manner that gives effect to
their object and the statutory scheme as a whole. In the present
case, Rule 7 of the Rules of 2002 provides for provisional
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(15 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
assessment and the mechanism for determining the final duty
liability upon the availability of the relevant information. Sub-rules
(5) and (6), which regulate the manner in which an amount
determined as refundable is to be dealt with, cannot be construed
as requiring the Department to disregard the excess duty already
deposited while determining the net duty liability. The question of
adjustment of the duty already paid is distinct from the question
of entitlement to receive a refund in cash. Therefore, the
appellant’s claim for adjustment requires consideration with
reference to the overall duty liability determined upon finalisation
of the provisional assessment, rather than being rejected solely on
the ground that the incidence of duty had been passed on to the
recipient units.
14.2. In Toyota Kirloskar Auto Parts Pvt. Ltd. (supra), the
Karnataka High Court held that the overall duty position had to be
considered upon finalisation of provisional assessment before an
interest liability could be imposed on an alleged short-payment.
The judgment recognises the importance of determining the actual
liability after accounting for the duty payments already made,
rather than treating the shortfall in isolation.
14.3. Further, in Godrej Consumer Products Ltd. (supra),
the Madhya Pradesh High Court examined whether excess duty
paid in certain months could be adjusted against short-paid duty
in other months where the assessable value was determined on
the basis of annual CAS-4 costing. The Court upheld the principle
that, where annual costing forms the basis for determining the
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(16 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
assessable value, the duty already paid during the relevant year
must be considered while calculating the overall liability. It further
held that the principle of unjust enrichment did not preclude such
adjustment in the circumstances of that case, as no refund was
being claimed.
15. Applying the aforesaid principles to the facts of the present
case, it is evident that the final assessment must take account of
the duty already deposited while determining the net liability. The
restrictions governing payment of a refund under Rule 7(6) of the
Rules of 2002 cannot, in themselves, justify disregarding an
excess payment while calculating the duty, if any, remaining
payable.
15.1. Learned counsel for the respondent has contended that the
appellant passed on the incidence of excess duty to its smelting
units, which availed CENVAT credit, and that the appellant stated
in its letter dated 14.09.2005 that it would not claim a refund of
the excess payment. These circumstances are relevant to a claim
for refund. They do not, however, alter the nature of the relief
sought in the present appeal. The appellant does not seek
payment of the excess amount in cash, it seeks only that the duty
already deposited be adjusted against the demand raised upon
finalisation of the assessment. The distinction is material.
Permitting adjustment does not result in a cash payment of the
excess amount to the appellant nor does it confer upon the
appellant a right to recover from the Department an amount which
it has expressly stated it would not claim as a refund. It merely
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(17 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
ensures that the Department determines and recovers the duty, if
any, that remains payable after accounting for the payments
already made. The fact that the recipient units have availed
CENVAT credit cannot, by itself, justify calculating the appellant’s
duty liability without giving credit for the duty already deposited.
15.2. The figures recorded in the adjudication order reinforce this
conclusion. The final annual duty liability was determined at
Rs.33,65,43,811/-, whereas the appellant had deposited
Rs.34,19,68,596/-. The total payment thus exceeded the final
annual liability by Rs.54,24,785/-. The demand of
Rs.1,16,53,609/- was raised by isolating the earlier portion of the
financial year, notwithstanding the excess payment recognised for
the remaining period. Such a demand cannot be sustained without
giving effect to the adjustment required for determining the net
liability.
15.3. If the interpretation given by learned counsel for the
respondent is accepted, it would produce an anomalous result that
the Department would retain the benefit of the excess duty
already deposited while recovering the alleged short-payment as
though that excess payment had never been made. Such a result
would not represent the actual duty liability established upon
finalisation of the provisional assessment.
16. Accordingly, Issue No.2 is answered in favour of the
appellant. The excess duty paid during the financial year 2004–05
is liable to be taken into account and adjusted against the alleged
short-payment while determining the net duty liability. The
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(18 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
appellant’s entitlement is confined to such adjustment and does
not extend to a cash refund of the excess amount.
ISSUE NO.3 :
17. Learned counsel for the appellant has submitted that the
appellant only seeks that the excess duty already deposited
should be adjusted against the alleged short-payment. It does not
seek a refund of the excess amount.
18. In view of the nature of the relief claimed and the conclusion
reached on Issue No. 2, in the considered opinion of this Court,
the appellant is not entitled to interest on the excess duty as
though a refund were being ordered.
18.1. Rule 7(5) of the Rules of 2002 deals with interest on a
refund arising upon finalisation of provisional assessment, subject
to the conditions prescribed under Rule 7(6). Those provisions
concern a refund and the statutory conditions governing payment
of the refundable amount. Since the present decision allows
adjustment and does not direct payment of a refund, there is no
occasion to award interest to the appellant on the excess amount.
19. A separate consideration arises in respect of interest
demanded by the Department on the alleged short-payment. Once
the excess duty is taken into account and the net duty liability is
determined, interest cannot be imposed on a shortfall that no
longer exists. If the adjustment establishes that no further duty
was payable, no interest can be recovered on the basis of the
demand sustained by treating the two portions of the financial
year in isolation.
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(19 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
20. Accordingly, Issue No. 3 is answered by holding that the
appellant is not entitled to interest on the excess duty, as no
refund is being granted. The Department, however, cannot
demand interest on an alleged short-payment without first giving
effect to the adjustment directed herein.
CONCLUSION :
21. In view of the foregoing discussion, this Court is of the
opinion that the appeal deserves to be allowed. The impugned
order dated 14.05.2009 passed by the Customs, Excise and
Service Tax Appellate Tribunal, New Delhi, and the consequential
demand arising from the order-in-original dated 30.11.2005
cannot be sustained to the extent that they deny adjustment of
the excess duty paid by the appellant against the alleged short-
payment.
22. The final assessment for the financial year 2004–05
determined the total duty liability at Rs.33,65,43,811/-, against
which the appellant had deposited Rs.34,19,68,596/-. The
Department was required to take the payments made during the
relevant year into account in determining the net liability and
could not sustain the demand of Rs.1,16,53,609/- by considering
only the period from 01.04.2004 to 19.12.2004.
23. The demand of Rs.1,16,53,609/- and the consequential
interest liability are accordingly set aside, subject to giving effect
to the adjustment in the appellant's duty account. No cash refund
or interest on the excess duty is directed. The Department shall
carry out the consequential exercise in accordance with law,
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)

(20 of 20)
[2026:RJ-JD:51538-DB] [EXCIA-3/2010]
taking into account the total duty liability finalised for the financial
year and the duty already deposited by the appellant. If the
records confirm the figures already recorded in the final
assessment, no further duty shall be recoverable on the demand
in question.
24. The questions of law are answered accordingly in favour of
the appellant, except that the claim for interest on the excess duty
is rejected. The appeal stands allowed in the above terms.
25. All pending applications stand disposed of.
(SUNIL BENIWAL), J (ARUN MONGA),J
RAKESH MATHUR
(Uploaded on 16/10/2026 at 03:14:11 PM)
(Downloaded on 16/10/2026 at 03:38:15 PM)
Powered by TCPDF (www.tcpdf.org)