TVS Motor wins partial relief as Tribunal permits netting off under Central Excise provisional assessments

TVS Motor wins partial relief as Tribunal permits netting off under Central Excise provisional assessments

Legal precedent confirms excess and short-paid excise duties can be adjusted upon final assessment closure

In a significant decision, the Customs, Excise and Service Tax Appellate Tribunal reaffirmed that adjustment of excess duty paid against short-paid duty during the finalization of a provisional assessment is legally permissible. The ruling arose from an appeal filed by TVS Motor Company Ltd, a major Indian manufacturer of two- and three-wheelers, underlining key procedural and jurisprudential elements of excise duty assessments under provisional regimes.

Provisional Assessment Framework

TVS Motor had opted for provisional assessments under the Central Excise framework, as critical parameters such as freight charges, dealer discounts, and post-sale incentives were indeterminable at the time of clearance. As a result, duty payments were based on provisional values. Upon finalization, it was discovered that duty had been overpaid in some instances and underpaid in others. The company proposed a "netting off" of these amounts — an internal adjustment mechanism between excess and short-paid duties to streamline the duty reconciliation process.

Revenue’s Contention: Lack of Provision and Unjust Enrichment Concerns

The Commissioner of Central Excise rejected the adjustment proposal, arguing that there was no statutory provision permitting such netting off and that any excess paid must be separately claimed as a refund, which would be subject to the doctrine of unjust enrichment. Citing the Supreme Court’s decision in Addison & Co., the Revenue maintained that TVS had not conclusively demonstrated that the burden of excess duty had not been passed on to customers or dealers, rendering them ineligible for refund or adjustment.

Tribunal’s Decision: Legal Basis for Adjustment Recognized

The Tribunal, comprising Dr. D.M. Misra and Mr. Pullela Nageswara Rao, disagreed with the Revenue's narrow interpretation. Drawing upon its own jurisprudence and a binding ruling of the Karnataka High Court, the CESTAT clarified that netting off is indeed allowable during provisional assessment finalizations, as it serves the very purpose of such a scheme accurate duty determination based on final transaction values. This decision strengthens the position of manufacturers and taxpayers operating under variable pricing models or post-sale adjustments, reaffirming that statutory mechanisms must be interpreted in a business-realistic and legally consistent manner.

Unjust Enrichment: Matter Remanded for Factual Determination

Despite allowing TVS's appeal on the legal permissibility of netting off, the Tribunal remanded the matter concerning unjust enrichment back to the Commissioner (Appeals). The CESTAT noted that the lower authority had relied on hypothetical illustrations rather than actual evidence, failing to assess the documentary submissions including Chartered Accountant certifications and credit notes, provided by the appellant. The Tribunal emphasized that factual examination of whether the duty burden was passed on is a prerequisite for resolving unjust enrichment claims and must be revisited with proper scrutiny of the evidence.

Industry Impact

This judgment is pivotal for manufacturers operating under provisional assessments, particularly in industries with complex post-clearance pricing structures. The following key principles were reinforced:

• Legal permissibility of netting off excess and short-paid duties within the framework of provisional assessments.
• The necessity of a fact-based inquiry into unjust enrichment, grounded in documentary evidence.
• The importance of adhering to the principles of natural justice and procedural fairness in adjudication.

Strengthening Taxpayer Rights with Judicial Oversight

The CESTAT’s ruling reiterates that provisional assessment mechanisms should not become procedural traps but must be interpreted in alignment with their intended purpose — enabling fair and accurate tax determination. While the doctrine of unjust enrichment remains a crucial safeguard, its application must be evidence-based, not hypothetical. This balanced approach enhances judicial predictability, reinforces fiscal discipline, and affirms the rights of taxpayers operating in good faith within a complex indirect tax regime.