The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has upheld a Central Excise demand of ₹4,00,33,430 against a non-manufacturer contractor for collecting an amount from its customer as representing Central Excise duty in excess of the actual duty paid by the manufacturers.

The bench of Binu Tamta (Judicial Member) and P. V. Subba Rao (Technical Member) has observed that the obligation under Section 11D(1A) of the Central Excise Act, 1944 is not confined to manufacturers. Where any person collects an amount representing excise duty in excess of the duty actually paid on excisable goods, the differential amount is required to be credited to the Central Government.

The case arose from turnkey projects undertaken in the energy sector, including contracts awarded by Madhya Pradesh Power Transmission Company Limited (MPPTCL), Jabalpur.

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The appellant was registered with the service tax department and was engaged in activities including erection, commissioning, works contract services and construction of complexes on a turnkey basis.

The MPPTCL award comprised four separate contracts covering supply of equipment and materials, civil works, installation and commissioning of substations, and installation and commissioning of transmission lines. The dispute before CESTAT concerned the first contract relating to supply of equipment and materials.

Although the appellant was a non-manufacturer, the tender documents contained separate formats for manufacturer and non-manufacturer bidders. A non-manufacturer was required to quote the total amount payable, whereas a manufacturer was required to provide a detailed price break-up including excise duty, CST, other taxes, freight and insurance and other components.

The appellant nevertheless submitted its bid using the format intended for manufacturers, separately indicating excise duty and other taxes. MPPTCL accepted the bid and awarded the contract.

The manufacturers from whom the appellant procured the equipment manufactured the goods, discharged the applicable excise duty and issued invoices in the appellant’s name. The goods were subsequently delivered to the project site.

The appellant thereafter raised invoices on MPPTCL. In some invoices, excise duty was separately shown, while in others the total amount was indicated according to the accepted prices.

During audit, the department found that the amounts represented by the appellant as excise duty were substantially higher than the actual excise duty paid by the manufacturers.

The Tribunal examined sample invoices to establish the difference. In one instance, the appellant’s invoice dated November 6, 2015 showed an excise duty component of ₹30,23,201, whereas the corresponding manufacturer’s invoice reflected actual excise duty of ₹22,75,000.

The Tribunal clarified that there was no dispute over the appellant charging a higher overall price than its purchase price. A contractor or trader could naturally purchase goods at one price and supply them at a higher price. The critical issue was the difference between the actual excise duty paid and the amount collected from the customer as excise duty.

Following the audit findings, the department issued a Show Cause Notice dated April 10, 2019, proposing recovery of the differential amount collected as representing excise duty under Section 11D(2) of the Central Excise Act, together with interest under Section 11DD.

The Principal Commissioner confirmed the demand, prompting the appeal before CESTAT.

The appellant argued that Section 11D could not apply because it was not a manufacturer and the goods had already been cleared from the manufacturers after payment of excise duty.

It was also argued that the contract had been awarded on a package-cost basis and that the documents relied upon by the department did not establish that the appellant had separately collected excise duty from MPPTCL.

The appellant further contended that it had merely submitted bids in the manufacturer’s format by mistake and relied upon several earlier judicial decisions in support of its case.

The Revenue opposed the appeal, pointing out that the appellant had not merely quoted a higher package price but had specifically indicated excise duty in its bid and invoices.

More importantly, the appellant had furnished undertakings along with its running bills stating that statutory taxes and duties had been deposited with the concerned authorities.

According to the Revenue, this representation was incorrect because the excise duty actually deposited by the manufacturers was substantially lower than the amount represented by the appellant as excise duty in its dealings with MPPTCL.

The Tribunal rejected the argument that the appellant’s status as a non-manufacturer took the transaction outside Section 11D.

CESTAT noted that the appellant was indeed a non-manufacturer and, under the tender terms, should have quoted only the total value of the goods. However, it voluntarily submitted bids in the manufacturer’s format, specifically setting out excise duty, CST and other taxes.

Once MPPTCL accepted the bid, the accepted price incorporated the basic price, excise duty, CST, other taxes, freight and insurance and other components.

The Tribunal held that MPPTCL had paid the amount to the appellant as excise duty, whether the duty component was separately displayed on a particular invoice or formed part of the accepted price.

The central question, therefore, was whether the appellant could retain the difference between the excise duty actually paid by the manufacturers and the higher amount collected from MPPTCL as representing excise duty.

CESTAT answered the question in the negative.

A key legal finding of the Tribunal was its interpretation of Section 11D(1A).

The provision requires a person who has collected an amount in excess of the duty actually determined and paid on excisable goods, or has collected an amount representing excise duty on excisable goods, to pay that amount to the credit of the Central Government.

The Tribunal distinguished Section 11D(1), which applies to a person liable to pay duty, from Section 11D(1A), which is broader in scope.

CESTAT specifically observed that Section 11D(1A) “would apply to a person” who has collected an amount representing excise duty in excess of the actual duty paid.

Since the appellant had collected an amount representing excise duty over and above the duty actually discharged by the manufacturers, and had further represented in its running bills that the statutory duties had been deposited, the Tribunal concluded that Section 11D(1A) squarely applied.

The Tribunal rejected the appellant’s contention that Section 11D was inapplicable because the goods were not manufactured by it and had already been cleared by the actual manufacturers after payment of duty.

CESTAT held that the statutory provision covers “any person” in the circumstances contemplated by Section 11D(1A), and does not make manufacturer status a prerequisite.

The Tribunal considered this particularly significant because the appellant itself had represented through its running bills that the amounts described as statutory taxes and duties had been deposited with the authorities.

The appellant had relied upon several earlier decisions where Section 11D was held inapplicable on the facts of those cases.

CESTAT examined the cited authorities and found that they involved materially different circumstances.

For instance, in Sangam (India) Ltd., the amounts under consideration involved payments by an insurance company and were not collected from the customer as excise duty.

Similarly, in Mayfair Polymers Pvt. Ltd., the assessee had supplied goods at a single cum-duty price without indicating or collecting any separate amount as excise duty.

In Pitambar Coated Papers Ltd., the relevant circumstances likewise did not establish collection of an amount from customers as representing excise duty.

The Tribunal also distinguished the decision concerning Bharat Petroleum Corporation Ltd., where comparison of invoices showed that no additional amount had been collected as representing excise duty.

CESTAT therefore concluded that the precedents cited by the appellant did not support its case because the factual foundation was different.

The original adjudication order had confirmed a Central Excise demand of ₹4,00,33,430 under Section 11D(1A) along with interest under Section 11DD.

Having concluded that the appellant collected amounts representing excise duty in excess of the actual duty paid by the manufacturers, CESTAT found no infirmity in the demand.

The Tribunal held that the Show Cause Notice and consequent determination under Section 11D(2), together with interest under Section 11DD, were legally sustainable.

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