Interest is payable u/s 11AB on differential excise duty with retrospective effect due to escalation clause – Supreme Court uphelds Division Bench judgments
ABCAUS Case Law Citation:
ABCAUS 2912 (2019) (05) SC
Important Case Laws considered/relied upon by the parties
CCE v. SKF India Ltd. 2009 (13) SCC 461
CCE v. International Auto Ltd. 2010 (2) SCC 672
E.D. Sassoon & Co. Ltd. v. CIT AIR 1954 SC 470
A Division Bench of the Hon’ble Supreme Court had doubted the correctness of the judgment rendered by another Division Bench and accordingly to resolve the controversy the matter was posted before the Full Bench presided by Hon’ble the CJI.
The question put forward was as to whether interest is payable on the differential excise duty with retrospective effect that become payable on the basis of escalation clause under Section 11AB of the Central Excise Act, 1944 (the Act).
The Division Bench had held that it was clearly a case of short-payment of duty (though unintended and without any element of deceit, etc.) and the payment of differential duty clearly came under sub-section (2-B) of Section 11-A and attracted levy of interest under Section 11-AB of the Act.
The Hon’ble Supreme Court opined that Section 11A must necessarily be read with Section 11AB. This is for the reason that interest under Section 11AB is premised upon the duty of excise not being levied or paid or short levied, short paid or erroneously refunded. Such duty is either determined under sub-Section(2) of Section 11A or without such determination it being paid under Section 2B of Section 11A. In any of the circumstances, namely, non-levy, non-payment, short-levy and short-paid, any duty has been determined or paid as has been provided under Section 11A, necessarily the assessee becomes liable to pay interest from the first date of the month succeeding the month in which duty ought to have been paid.
The Hon’ble Supreme Court noted that the question which was to be answered was when price is revised upward with retrospective effect and the excise duty on the same is paid immediately on a future date whether interest is payable under Section 11AB from the first day of the month succeeding the month in which the duty ought to have been paid under the Act.
The Hon’ble Supreme Court opined that in a case where there is an escalation clause goods are cleared on a provisional price. Consequently, the value is provisional. There is a subsequent escalation with retrospective effect. It will affect the valuation which was employed in the self-assessment by the assessee which would necessarily be provisional. Enhancement of the value will date back to the dates of removal in view of the retrospective operation. Admittedly the liability for payment of differential duty has arisen. Upon the true value, in a case of retrospective escalation of price though later agreed being received and consequential differential duty being admittedly payable, it would result in application of Section 11A read with Section 11AB.
The Hon’ble Supreme Court observed that in the notice issued claiming interest it was stated there was short levy. The Court opined that if the concept of short payment is stretched to include all amounts which ought to have been paid, it may also be treated as a case of short payment though juridically it may be true that it may strictly fall under short levy.
The Hon’ble Supreme Court opined that the reasoning of the Court in the order referred that for the purpose of Section 11AB, the expression “ought to have been paid” would mean the time when the price was agreed upon by the seller and the buyer does not square with our understanding of the clear words used in Section 11AB and as the rules proclaim otherwise and it provides for the duty to be paid for every removal of goods on or before the 6th day of the succeeding month. Interpreting the words in the manner contemplated by the Bench which referred the matter would result in doing violence to the provisions of the Act and the Rules.
The Hon’ble Supreme Court pointed out that when an assessee in similar circumstances resorts to provisional assessment upon a final determination of the value consequently, the duty and interest dates back to the month “for which” the duty is determined. Duty and interest is not paid with reference to the month in which final assessment is made. It may be true that the differential duty becomes crystalised only after the escalation is finalized under the escalation clause but it is not a case where escalation is to have only prospective operation. It is to have retrospective operation admittedly. This means the value of the goods which was only admittedly provisional at the time of clearing the goods is finally determined and it is on the said differential value that admittedly that differential duty is paid.
The Hon’ble Supreme Court said that while the principle that the value of the goods at the time of removal is to reign supreme, in a case where the price is provisional and subject to variation and when it is varied retrospectively it will be the price even at the time of removal. The fact that it is known, later cannot detract from the fact, that the later discovered price would not be value at the time of removal.
Most significantly, section 11A and section 11AB as it stood at the relevant time did not provide read with the rules any other point of time when the amount of duty could be said to be payable and so equally the interest.
The Hon’ble Supreme Court concurred with the views expressed by the Division Benches and dismissed the appeal.