Full Judgment Text
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 2150 OF 2012
M/S. STEEL AUTHORITY OF INDIA LTD. .....APPELLANT(S)
VERSUS
COMMISSIONER OF CENTRAL EXCISE,
RAIPUR
.....RESPONDENT(S)
W I T H
CIVIL APPEAL NO. 2562 OF 2012
CIVIL APPEAL NO. 599 OF 2013
CIVIL APPEAL NO. 600 OF 2013
A N D
JUDGMENT
CIVIL APPEAL NOS. 1522-1523 OF 2013
J U D G M E N T
A.K. SIKRI, J.
In all these appeals, identical question of law is involved
and for the sake of brevity, we are discussing the question of law
by taking note of the facts from Civil Appeal No. 2150 of 2012.
Civil Appeal No. 2150 of 2012 & Ors. Page 1 of 29
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2. The appellant/assessee herein, which is a public sector
undertaking of the Government of India, has been selling iron and
steel products, that are manufactured by it, to the Indian
Railways. For this purpose, contract was signed between the
said two parties and the goods were being sold to the Indian
Railways at the price mutually agreed upon between them. On
each removal of these goods for supply to the Railways, the
assessee had been paying the excise duty as per the price
disclosed by the assessee in the invoices issued at the time of
the removal of the goods. Goods in this manner were supplied
during the period January, 2005 to July, 2006 which period is
involved in the instant appeal. It so happened that there was an
upward revision in the price by the Railways in August, 2006
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covering the period in question. On that basis, assessee was
paid the price difference on the fixation of enhanced
consideration for the goods supplied. The assessee paid the
differential duty of Rs.142.78 crores voluntarily in August, 2006.
According to the Revenue/respondent, since the differential duty
was paid in August, 2006 and not paid at the time of clearance of
the goods, there was delay in paying the differential duty and,
Civil Appeal No. 2150 of 2012 & Ors. Page 2 of 29
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therefore, under Section 11AB of the Central Excise Act, 1944
(hereinafter referred to as the 'Act'), the assessee was liable to
pay interest on the differential duty amount paid by it. The
contention of the Revenue has been upheld by the Authorities
below including Custom Excise and Service Tax Appellate
Tribunal (hereinafter referred to as the 'Tribunal').
3. The question, thus, that arises for consideration in these appeals
is as to whether interest is leviable under Section 11AB of the Act
on the differential duty amount paid under supplementary
invoices due to price increase by virtue of price variation clause in
the sale contract. Now, facts in some detail:
The assessee is engaged in the manufacture of iron and
steel products falling under Chapter 72 and 73 of the schedule of
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the Central Excise Tariff Act, 1985. The final products
manufactured includes rails. The final products manufactured by
the assessee are cleared on payment of appropriate duty of
excise leviable thereon. The final products are either directly sold
at the factory gate or are transferred to various Branch Sales
Offices from where they are sold to the customers. The sales
either from the factory or from the BSOs are in terms of purchase
Civil Appeal No. 2150 of 2012 & Ors. Page 3 of 29
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orders received from the customers. The assessee sold the rails
to the Indian Railways in terms of the Price Circular No. LP-06 of
2005 dated 24.02.2005 w.e.f. 01.07.2004.
In terms of the prices quoted in the purchase orders, the
assessee discharged central excise duty at the time of removal of
the rails to the Indian Railways. Such price was the “transaction
value” of the goods in terms of Section 4 of the Act at the given
time. In terms of the price variation clause and also in terms of
the agreement with the Indian Railways, the price circular dated
24.02.2005 effective from 01.07.2004 was revised upwards with
increase in the agreed upon price. A revised price circular No.
LP-010/06 dated 20.07.2006 was issued revising the agreed
upon price.
In terms of the revised price circular the assessee
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discharged differential duty of Rs.142,78,88,172/- on the rails
cleared during the period from January, 2005 to July, 2006. The
differential duty was paid in August, 2006 under intimation to the
Departmental Authorities.
4. In the above background, on a scrutiny of ER-1 return filed by the
assessee for the month of August, 2006, a show cause notice
Civil Appeal No. 2150 of 2012 & Ors. Page 4 of 29
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dated 01.06.2007 was issued to the assessee contending that in
respect of the differential duty of Rs.142.78 crores paid in August,
2006, the assessee are required to pay an interest of
Rs.15,51,81,231/- under Section 11AB of the Act. The notice
alleged that since the price was not correctly determined at the
time of removal of goods there was short payment of duty hence
the assessee is liable to pay interest. The notice also alleges that
since the price was not final the duty should be treated as paid on
the provisional price and in terms of Rule 7(4) of the Central
Excise Rules interest under Section 11AB is payable. The notice
also relied on circular dated 28.07.2003 to allege that the
assessee is required to pay interest. The notice also proposed to
impose penalty under Rule 25 for contravention of Rules 7 and 8
of the Rules.
JUDGMENT
5. The assessee filed detailed reply dated 17.10.2007 challenging
the allegations contained in the show cause ntoice and
contending that no interest is payable on the differential duty paid
on account of price variation.
6. The Commissioner of Central Excise, Raipur passed order dated
31.10.2007 confirming the amount of interest proposed in the
Civil Appeal No. 2150 of 2012 & Ors. Page 5 of 29
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show cause notice and also imposing penalty of Rs.2,00,000/-.
Against the order dated 31.10.2007 passed by the Commissioner
of Central Excise, Raipur, assessee filed an appeal before the
Tribunal. The Tribunal has passed the impugned order dated
13.08.2010 and dismissed the appeal. This order is challenged
by way of instant appeal.
7. It becomes manifest from the aforesaid facts that the assessee
had discharged the excise duty on the goods cleared by it on the
basis of invoices raised indicating the value of these goods and
as on the date of the clearance of these goods. It cannot be
disputed that the price declared in the said invoice was the
transaction value of the goods in terms of Section 4 of the Act
inasmuch as that was the price fixed between the parties at which
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the goods were to be supplied at the time and place of removal.
The occasion for differential duty arose at a later date due to price
variation clause in the contract for sale. The moment the
assessee received the enhanced price due to price escalation, it
paid differential duty on its own immediately on receipt of the said
price.
8. It is in this backdrop it is to be examined as to whether the
Civil Appeal No. 2150 of 2012 & Ors. Page 6 of 29
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difference in price, as per the decision taken by the Railways on a
later date i.e. much after the date on which the goods were
cleared, can be treated as price as on the date when the goods
were actually removed and, therefore, it is to construed that the
duty initially paid was 'short paid' to bring this event within the fold
of Section 11AB of the Act. As per the assessee, provisions of
Section 11AB of the Act would not be attracted at all inasmuch as,
by no stretch of imagination, it can be treated that on the date of
removal of the goods when the duty was paid as per the price
fixed at that time, it is now to be treated as 'short paid' only
because of the occurrence of an event at a later date which could
not be visualised or taken into consideration at the time of
removal of these goods.
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9. For proper understanding of the matter, we may reproduce
provisions of Section 11AB of the Act at this stage, which reads
as under:
“(1) Where any duty of excise has not been
levied or paid or has been short-levied or
short-paid or erroneously refunded, the person
who is liable to pay the duty as determined
under sub-section (2), or has paid the duty under
sub-section (2B), of Section 11A, shall, in
addition to the duty, be liable to pay interest at
such rate not below eighteen percent and not
exceeding thirty-six percent per annum, as is for
Civil Appeal No. 2150 of 2012 & Ors. Page 7 of 29
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the time being fixed by the Central Government,
by notification in the Official Gazette, from the
first date of the month succeeding the month in
which the duty ought to have been paid under
this Act, or from the date of such erroneous
refund, as the case may be, but for the
provisions contained in sub-section (2), or
sub-section (2B), of Section 11A till the date of
payment of such duty:
Provided that in such cases where the
duty becomes payable consequent to issue of an
order, instruction or direction by the Board under
Section 37B, and such amount of duty payable is
voluntarily paid in full, without reserving any right
to appeal against such payment at any
subsequent stage, within forty-five days from the
date of issue of such order, instruction or
direction, as the case may be, no interest shall
be payable and in other cases the interest shall
be payable on the whole of the amount,
including the amount already paid.
(2) The provisions of sub-section (1) shall not
apply to cases where the duty had become
payable or ought to have been paid before the
date on which the Finance Bill, 2001 receives
the assent of the President.
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Explanation 1. - Where the duty determined to
be payable is reduced by the Commissioner
(Appeals), the Appellate Tribunal or, as the case
may be, the Court, the interest shall be payable
on such reduced amount of duty.
Explanation 2. - Where the duty determined to
be payable is increased or further increased by
the Commissioner (Appeals), the Appellate
Tribunal or, as the case may be, the Court, the
interest shall be payable on such increased or
further increased amount of duty.”
10. A bare reading of the aforesaid provision reflects that in order to
Civil Appeal No. 2150 of 2012 & Ors. Page 8 of 29
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attract the same, following requirements need to be fulfilled:
(a) Non-levy or non-payment of duty.
(b) Short levy or short payment of duty.
(c) erroneous refund.
(d) duty determined under Section 11A(2).
(e) Section 11A(2) requiring Notice issued under Section 11A.
(f) duty payment under Section 11A(2B).
(g) interest is payable on such reduced or increased duty
determined to be payable by Commissioner (Appeals) or
Appellate Tribunal etc.
11. Before proceeding further, we would like to point out that we are
not treading on a virgin territory, inasmuch as the provisions of
Section 11AB of the Act have already been interpreted by this
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Court in two judgments under almost similar circumstances.
These are:
1
(a) CCE v. SKF India Ltd .
2
(b) CCE v. International Auto Limited .
12. In SKF India Ltd. case, the assessee was engaged in the
manufacture and sale of ball bearings and textile machine parts.
1 (2009) 13 SCC 461
2 (2010) 2 SCC 672
Civil Appeal No. 2150 of 2012 & Ors. Page 9 of 29
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It sold goods manufactured by it on certain prices on payment of
excise duty leviable on the price on which the goods were sold.
Later on, there was a revision of prices with retrospective effect.
Following the revision the assessee raised supplementary
invoices on its buyers and also paid the differential duty on the
goods sold earlier. The Revenue took the view that the assessee
was liable to pay interest on differential duty. This factual position
would reflect that it was almost same that prevails in the present
appeals. Though, the demand made in Order-in-Original was set
aside by the Commissioner (Appeals) and the order of the
Commissioner (Appeals) was upheld by the CESTAT holding that
no interest was chargeable where there was time gap between
the payment of differential duty and issuance of supplementary
invoices to the customers on the basis of upward revision of
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prices in respect of the goods sold earlier. The said view of the
Tribunal was reversed by this Court holding that interest was
payable under Section 11AB of the Act. After reproducing the
provisions of Section 11AB, the Court in the first instance pointed
out that the aforesaid provision was not happily worded and made
following remarks in this behalf:
“9. If the object of the law is to state clearly and
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unambiguously the obligations of the person
whom the law addresses and to spell out plainly
and without any confusion the consequences of
failure to discharge the obligations cast by the
law then the four sections of the Act fall miles
short of the desired objective. Even as originally
cast the provisions were far from very happily
framed and worded. Subjected to amendments
from time to time those provisions have now
become so complicated that in order to discern
their meaning it becomes necessary to read
them back and forth several times.
10. We see no reason why the two periods for
which interest is leviable may not be put together
and dealt with in one consolidated provision
instead of being split up in Sections 11-AA and
11-AB. Also, there is much scope to reorganise
all the different sub-sections of Section 11-A and
to present the scheme of that section in a more
coherent and readable form. Be that as it may.
In the case in hand we have to deal with the law
as it stands now.”
13. Thereafter, the Court contrasted the provisions of Section 11A
with Section 11AB and some other provisions. It also took note of
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the judgment of High Court of Bombay in CCE v. Rucha Engg.
3
(P) Ltd. wherein the Bombay High Court had held that Section
11AB of the Act is not applicable in such a situation. The Court,
however, rejected the aforesaid view of the Bombay High Court.
We would like to reproduce the relevant discussion touching the
aforesaid aspect, as contained in the judgment:
“11. Section 11-A puts the cases of non-levy or
short-levy, non-payment or short-payment or
3 First Appeal No. 42 of 2007 decided on 03.04.2007
Civil Appeal No. 2150 of 2012 & Ors. Page 11 of 29
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erroneous refund of duty in two categories. One
in which the non-payment or short-payment, etc.
of duty is for a reason other than deceit; the
default is due to oversight or some mistake and
it is not intentional. The second in which the
non-payment or short-payment, etc. of duty is
“by reason of fraud, collusion or any wilful
misstatement or suppression of facts, or
contravention of any of the provisions of the Act
or of Rules made thereunder with intent to evade
payment of duty”; that is to say, it is intentional,
deliberate and/or by deceitful means. Naturally,
the cases falling in the two groups lead to
different consequences and are dealt with
differently.
12. Section 11-A, however allow the
assessees-in-default in both kinds of cases to
make amends, subject of course to certain terms
and conditions. The cases where the
non-payment or short-payment, etc. of duty is by
reason of fraud, collusion, etc. are dealt with
under sub-section (1-A) of Section 11-A and the
cases where the non-payment or short-payment
of duty is not intentional under sub-section (2-B).
13. Sub-section (2-B) of Section 11-A provides
that the assessee-in-default may, before the
notice issued under sub-section (1) is served on
him, make payment of the unpaid duty on the
basis of his own ascertainment or as ascertained
by a Central Excise Officer and inform the
Central Excise Officer in writing about the
payment made by him and in that event he
would not be given the demand notice under
sub-section (1). But Explanation 2 to the
sub-section makes it expressly clear that such
payment would not be exempt from interest
chargeable under Section 11-AB, that is, for the
period from the first date of the month
succeeding the month in which the duty ought to
have been paid till the date of payment of the
duty.
JUDGMENT
Civil Appeal No. 2150 of 2012 & Ors. Page 12 of 29
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14. What is stated in Explanation 2 to
sub-section (2-B) is reiterated in Section 11-AB
that states where any duty of excise has not
been levied or paid or has been short-levied or
short-paid or erroneously refunded, the person
who has paid the duty under sub-section (2-B) of
Section 11-A, shall, in addition to the duty, be
liable to pay interest…. It is thus to be seen that
unlike penalty that is attracted to the category of
cases in which the non-payment or
short-payment, etc. of duty is “by reason of
fraud, collusion or any wilful misstatement or
suppression of facts, or contravention of any of
the provisions of the Act or of Rules made
thereunder with intent to evade payment of
duty”, under the scheme of the four Sections
(11-A, 11-AA, 11-AB and 11-AC) interest is
leviable on delayed or deferred payment of duty
for whatever reasons. The payment of
differential duty by the assessee at the time of
issuance of supplementary invoices to the
customers demanding the balance of the revised
prices clearly falls under the provision of
sub-section (2-B) of Section 11-A of the Act.
15. The Bombay High Court, Aurangabad
Bench, in its decision in CCE v. Rucha Engg. (P)
Ltd. , (First Appeal No. 42 of 2007 decided on
3-4-2007) that was relied upon by the Tribunal
for dismissing the Revenue’s appeal took the
view that there would be no application of
Section 11-A(2-B) or Section 11-AB where
differential duty was paid by the assessee as
soon as it came to learn about the upward
revision of prices of goods sold earlier.
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16. In Rucha Engg. the High Court observed as
follows:
“It is evident that Section 11-AB comes into play
if the duty paid/levied is short. Both, the
Commissioner (Appeals) and CESTAT have
observed that the assessee paid the duty on its
own accord immediately when the revised rates
became known to them from their customers.
Civil Appeal No. 2150 of 2012 & Ors. Page 13 of 29
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The differential duty was due at that time i.e.
when the revised rates applicable with
retrospective effect were learnt by the assessee,
which was much after the clearance of the
goods and, therefore, question of payment of
interest does not arise as the duty was paid as
soon as it was learnt that it was payable. Finding
that provisions of Section 11-A(2) and 11-A(2-B)
were not applicable as the situation occurred in
the instant case was quite different, Section
11-AB(1) was not at all applicable, and therefore,
the assessee was not required to pay interest.”
It further held that a case of this nature would
not fall in the category where duty of excise was
not paid or short-paid.
17. We are unable to subscribe to the view
taken by the High Court in Rucha Engg. It is to
be noted that the assessee was able to demand
from its customers the balance of the higher
prices by virtue of retrospective revision of the
prices. It, therefore, follows that at the time of
sale the goods carried a higher value and those
were cleared on short-payment of duty. The
differential duty was paid only later when the
assessee issued supplementary invoices to its
customers demanding the balance amounts.
Seen thus, it was clearly a case of
short-payment of duty though indeed completely
unintended and without any element of deceit,
etc. The payment of differential duty thus clearly
came under sub-section (2-B) of Section 11-A
and attracted levy of interest under Section
11-AB of the Act.”
JUDGMENT
14. Fact situation in International Auto Limited was also almost
similar. In that case, the assessee, viz., International Auto
Limited had supplied auto parts to its customers (manufacturers
of motor vehicles) who determined the prices of auto parts having
Civil Appeal No. 2150 of 2012 & Ors. Page 14 of 29
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regard to the cost of raw material, manufacturing cost, profit
margin, etc. and placed orders with the assessee. Since price
difference arose between the price on the date of removal and
the enhanced price at which the goods stood ultimately sold, the
Department issued show cause notice proposing to levy interest
on the differential duty, paid by the assessee, under Section
11-AB of the Act. The assessee took up the defence that prices
indicated in the purchase order were final and not liable to
change at the time of removal of the goods and, thus, it was not
the case of 'short levy' on which interest could be charged. After
extensively quoting from the judgment of SKF India Ltd. and
following the same, aforesaid contention of the assessee was
repelled. In addition, the judgment also contained some further
discussion on Section 11AB of the Act which needs to be taken
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note of. It runs as under:
“6. Section 11-A of the Act deals with recovery of
duty not levied or not paid or short-levied or
short-paid. The said section, which stood
inserted by Act 25 of 1978, underwent a sea
change when Parliament inserted major changes
in that section vide Act 14 of 2001 (with effect
from 11-5-2001) and Act 32 of 2003 (with effect
from 14-5-2003). It needs to be mentioned that
simultaneously Act 14 of 2001 also made
changes to Section 11-AB of the Act.
7. In SKF India Ltd., (2009) 13 SCC 461, it has
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been, inter alia, held, as can be seen from the
abovequoted paragraphs, that sub-section (2-B)
of Section 11-A provides that the assessee in
default may make payment of the unpaid duty
on the basis of his own ascertainment or as
ascertained by a Central Excise Officer and, in
that event, such assessee in default would not
be served with the demand notice under Section
11-A(1) of the Act. However, Explanation 2 to the
sub-section makes it clear that such payment
would not be exempt from interest chargeable
under Section 11-AB of the Act. What is stated in
Explanation 2 to sub-section (2-B) is reiterated in
Section 11-AB of the Act, which deals with
interest on delayed payment of duty.
8. From the scheme of Section 11-A(2-B)
and Section 11-AB of the Act, it becomes clear
that interest is levied for loss of revenue on any
count. In the present case, one fact remains
undisputed, namely, accrual of price differential.
What does differential price signify? It signifies
that value, which is the function of the price, on
the date of removal/clearance of the goods was
not correct. That, it was understated. Therefore,
the price indicated by the supplementary invoice
is directly relatable to the value of the goods on
the date of clearance, hence, enhanced duty.
This enhanced duty is on the corrected value of
the goods on the date of removal. When the
differential duty is paid after the date of
clearance, it indicates short-payment/short-levy
on the date of removal, hence, interest which is
for loss of revenue, becomes leviable under
Section 11-AB of the Act.
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9.
In our view, with the entire change in the
scheme of recovery of duty under the Act,
particularly after insertion of Act 14 of 2001 and
Act 32 of 2003, the judgment of this Court in
MRF Ltd. would not apply. That judgment was on
interpretation of Section 11-B of the Act, which
concerns claim for refund of duty by the
assessee. That judgment was in the context of
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the price list approved on 14-5-1983. In that
case, the assessee had made a claim for refund
of excise duty on the differential between the
price on the date of removal and the reduced
price at which tyres were sold. The price was
approved by the Government. In that case, the
assessee submitted that its price list was
approved by the Government on 14-5-1983, but
subsequent thereto, on account of consumer
resistance, the Government of India directed the
assessee to roll back the prices to pre-14-5-1983
level and on that account, price differential arose
on the basis of which the assessee claimed
refund of excise duty which stood rejected by
this Court on the ground that once the assessee
had cleared the goods on classification, the
assessee became liable to payment of duty on
the date of removal and subsequent reduction in
the prices for whatever reason cannot be made
a matter of concern to the Department insofar as
the liability to pay excise duty was concerned.
10. In the present case, we are concerned
with the imposition of interest which, as stated
above, is charged to compensate the
Department for loss of revenue. Be that as it
may, as stated above, the scheme of Section
11-A of the Act has since undergone substantial
change and, in the circumstances, in our view,
the judgment of this Court in MRF Ltd. has no
application to the facts of this case. In our view,
the judgment of this Court in SKF India Ltd. is
squarely applicable to the facts of this case.”
JUDGMENT
15. Mr. Lakshmikumaran, who appeared for the assessees in these
appeals, insisted on a different course of action. He adopted two
pronged strategy. His first endeavour was to show that the
judgments in the cases of SKF and International Auto were not
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applicable as the aforesaid cases were distinguishable. His
alternate submission was that these judgments do not correctly
interpret the provisions of Section 11AB of the Act and, therefore,
matter required a fresh look by a Larger Bench.
16. It is difficult to accept the first submission. As already pointed out
above, the factual scenario in which the aforesaid two cases were
decided were similar, nay, almost identical. When this Court on
the basis of same type of events interpreted the provisions of
Section 11AB of the Act in a particular manner and held, in no
certain terms, that interest was payable, it is difficult to
countenance the argument of the assessee that these cases are
distinguishable on facts. Therefore, we advert to the second
plank of Mr. Lakshmikumaran's submissions which was argued
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with all vehemence, covering the entire length and breadth of the
statutory provisions with relevant case laws.
17. In the first instance, he pointed out that in these appeals, there
can be two distinct types of transactions: (a) where the price of
the goods is 'fixed' at the time and place of removal, and as a
result of subsequent negotiations (often protracted) the price is
retrospectively revised by the buyer; (b) where the price at the
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time and place of removal is 'not fixed' (price subject to escalation
clause), and the final price is agreed between the seller and
buyer subsequently. According to him in the cases falling in the
first category, even the differential duty is not payable. However,
all these appeals fall in second category and, therefore, we are
not indulging in any discussion pertaining to the first category.
We may also point out that in all these appeals, the period in
dispute (i.e. the period in which supplementary invoices on
account of price revision were raised) is post the introduction of
the 'transaction value' definition in Section of the Act, 1944 but
before 2010.
18. It is a common case of the parties and even the learned counsel
for the assessee admits that in non-fixed price scenario,
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differential duty is liable to be paid on subsequent revision of
price which the assessee had already paid the differential duty at
or about the time when revised price was agreed upon by the
seller and the buyer. The question, however, is as to whether
interest thereon is payable from the date of clearance of goods
when duty was paid on the basis of invoice, till the date when
differential duty was paid.
Civil Appeal No. 2150 of 2012 & Ors. Page 19 of 29
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19. Starting from the basics, it is axiomatic that interest under Section
11AB can be levied/charged where any duty of excise has not
been levied or paid or has been short levied or short paid. In such
an event, interest is liable to be paid 'from the first date of the
month succeeding the month in which the duty ought to have
been paid'. Section 4(1)(a) of the Act provides that the value of
the goods shall be the price 'actually paid or payable' for the
goods. This means the price which has been 'paid' or 'agreed to
be paid' by the buyer of the goods. We find force in the argument
of the assessee that the expression 'ought to have been paid' in
Section 11AB has to be understood in this light. Thus, for the
purposes of Section 11AB, the expression 'ought to have been
paid' would mean the time when the price is agreed upon by the
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seller and the buyer. In other words, the right of the seller to
receive the revised price crystallises only when the buyer agrees
to sanctions the same, and only at that time can liability to pay
duty, if at all, on the revised price arise. Both parties are not
aware of the final price at the time when the goods are removed.
In the context of price revision subsequent to clearance, duty
'ought to be paid' only after the sanctioning of the revised priced
Civil Appeal No. 2150 of 2012 & Ors. Page 20 of 29
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by the buyer. The differential duty on account of price revision is
paid in the month when the revised price is agreed between the
seller (assessee) and the buyer and it ought to have been paid
only at that time and not before.
20. One has also to keep in mind the difference between 'what should
be the quantum of duty to be paid' and 'when such duty is
payable'. In the cases price revision, the quantum of duty would
be on the escalated price but the time for payment of differential
duty is when the parties agree for the escalation in prices. On that
reckoning, it would follow that interest clock for differential duty
will start ticking from the date differential duty is due, i.e., the date
of agreement of escalated prices and not before. This concept
gets clarified with the latest amendment in 2015 to Section 11A
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with regard to the 'relevant date' for payment of interest.
21.
We have already taken note of judgments in SKF and
International Auto including the reasons which have been given in
support of the view that interest would be payable. At the outset,
we may mention that the Bench did not consider the effect of the
expression 'ought to have been paid' occurring in Section 11AB of
the Act. It is undeniable that under Section 4 of the Act, the
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22
excise duty is to be paid on the 'transaction value' and such a
transaction value has to be seen at the time of clearance of the
goods. Indubitably, when the goods were cleared, the excise
duty was paid taking into consideration the price that was actually
charged and was reflected in the invoices raised for the said
purpose. The Department cannot plead that as on that date, this
was not the price charged. No doubt, when the differential
payment is made at a later date, further amount towards excise
duty becomes payable as a result of said differential in price.
Further, such an event took place at a subsequent date. As on
the date when the goods were cleared, there was no certainty
that there would be price escalation and it was beyond
comprehension to ascertain the exactitude of such an escalation.
It would be impossible to expect the assessee to pay the excise
JUDGMENT
duty, at the time of clearance of the goods, on the basis of price
escalation that took place at a later date in future. Therefore, as
on the date of clearance when excise duty was paid, it could not
be treated as 'short paid' on the said date. As a consequence
when the principal amount, namely, the excise duty itself was not
payable (i.e. on the differential) on the date of clearance of the
goods, there cannot be any question of law to pay interest.
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23
22. No doubt, on receipt of differential price, when the buyer agreed
to escalation in the price, further excise duty also become
payable and on that reckoning one can say that the excise duty
originally paid became 'short paid'. However, that would only
attract payment on differential excise duty and not the interest
thereon.
23. The two judgments in SKF India Ltd. and International Auto are
by the same Bench. International Auto follows SKF India Ltd.
The primary factor by which the Bench was influenced was that
there is a loss of revenue to the Government and, therefore, the
Government should compensate for that. It proceeds on the
basis that the price which was originally stated at the time of
removal of the goods was 'understated' (para 8 of International
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Auto). However, value of the goods for the purpose of duty is 'at
the time of removal', as emphasised above which remains
fundamental principle from the inception of the Central Excise Act
originally enacted in 1944 and remains valid till date. It is,
therefore, difficult to accept that the price was 'understated' on the
date of removal of those goods.
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24
24. We further find that the Bench distinguished earlier three member
Bench judgment in the case of MRF Ltd. v. Commissioner of
4
Central Excise, Madras on the purported ground that there was
'sea change' in Section 11A of the Act (which was originally
inserted by Act 25 of 1978) when Parliament inserted major
changes in that Section vide Act 14 of 2001 w.e.f. 11.05.2001, Act
32 of 2003 w.e.f. 14.05.2003 and Act 14 of 2001 whereby Section
11AB of the Act was also amended. However, we are of the
opinion that amendments made to Section 11A in 2001 and 2003
have nothing to do with the valuation of the goods based on 'the
price at the time of removal'. MRF was a case where a particular
price was charged by the said assessee from the buyer on the
date of removal and excise duty paid thereupon. However,
thereafter this price was reduced on the direction of the
JUDGMENT
Government. On that basis, assessee laid its claim for refund of
excise duty on differential between price on the date of removal
and the reduced price at which the buyers were sold on the
direction of the Government. This claim of the assessee was
rejected and the order upheld by this Court as well with the
following discussion:
4 (1997) 5 SCC 104
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25
“2. We have heard the learned counsel for the
assessee. Once the assessee has cleared the
goods on the classification and price indicated by
him at the time of the removal of the goods from
the factory gate, the assessee becomes liable to
payment of duty on that date and time and
subsequent reduction in Excise Department
insofar as the liability to payment of excise duty
was concerned. This is the view which was
taken by the Tribunal in the case of Indo Hacks
Ltd. v. CCE (1986) 25 ELT 69 (Trib.) and it
seems to us that the Tribunal's view that the duty
is chargeable at the rate and price when the
commodity is cleared at the factory gate and not
on the price reduced at a subsequent date is
unexceptionable. Besides as rightly observed by
the Tribunal the subsequent fluctuation in the
prices of the commodity can have no relevance
whatsoever so far as the liability to pay excise
duty is concerned. That being so, even if we
assume that the roll back in the price of tyres
manufactured by the appellant Company was
occasioned on account of the directive issued by
the Central Government, that by itself, without
anything more, would not entitle the appellant to
claim a refund on the price differential unless it is
shown that there was some agreement in this
behalf with the Government and the latter had
agreed to refund the excise duty to the extent of
the reduced price. That being so, we see no
merit in this appeal brought by the assessee and
dismiss the same with no order as to costs.”
JUDGMENT
We, thus, are of the view that principle laid down in MRF
Ltd. would continue to prevail.
25.
Mr. Lakshmikumaran argued, and we find force in this argument,
that observations of the Bench in the aforesaid case that the
imposition of interest is to compensate the Department for loss of
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26
revenue is contrary to the Constitution Bench judgment in the
5
case of J.K. Synthetics Limited v. Commercial Taxes Officer
wherein the argument that interest was compensatory in nature
was specifically rejected. The Constitution Bench considered in
detail the correctness of earlier three member Bench judgment in
the case of Associated Cement Company Limited v.
6
Commercial Tax Officer, Kota and Others wherein majority
view was that interest claimed on unpaid tax dues could be
charged as it was compensatory in character and not penal.
Bhagwati, J. had, however, dissented giving various reasons, one
of which was that tax which has yet to be ascertained through the
process of ascertainment could not be treated as tax payable
from the date of submission of the return and, therefore, no
interest could be charged from the date of filing of the return upto
JUDGMENT
the date of assessment. This view of Bhagwati, J. was accepted
after detailed discussion with the following conclusion:
“...Our attention was, however, drawn by Mr.
Sen to two cases. Even in those cases, CIT v.
M. Chandra Sekhar , (1985) 1 SCC 283 and
Central Provinces Manganese Ore Co. Ltd. v.
CIT , (1986) 3 SCC 461, all that the Court
pointed out was that provision for charging
interest was, it seems, introduced in order to
compensate for the loss occasioned to the
5 (1994) 4 SCC 276
6 (1981) 4 SCC 578
Civil Appeal No. 2150 of 2012 & Ors. Page 26 of 29
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Revenue due to delay. But then interest was
charged on the strength of a statutory provision
may be its objective was to compensate the
Revenue for delay in payment of tax. But
regardless of the reason which impelled the
Legislature to provide for charging interest, the
Court must give that meaning to it as is
conveyed by the language used and the
purpose to be achieved. Therefore, any
provision made in a statute for charging or
levying interest on delayed payment of tax must
be construed as a substantive law and not
adjectival law. So construed and applying the
normal rule of interpretation of statutes, we find,
as pointed out by us earlier and by Bhagwati, J.
in the Associated Cement Co. case, that if the
Revenue's contention is accepted it leads to
conflicts and creates certain anomalies which
could never have been intended by the
Legislature.”
26.
We are conscious of the sentiments expressed by seven Judges
Bench of this Court in Keshav Mills Company Limited v.
7
Commissioner of Income Tax, Bombay wherein the Court
sounded caution and stated the restraint that has to be exercised
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while dealing with the question as to whether earlier decisions of
this Court should be reconsidered and revised. The Court
observed that merely because two views are possible should not
be a reason to review the earlier judgment as it was necessary to
maintain consistency and depict certainty in law. At the same
time, Court made the following remarks:
“...That is not to say that if on a subsequent
7 (1965) 2 SCR 908
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occasion, the Court is satisfied that its
earlier decision was clearly erroneous, it should
not hesitate to correct the error; but before a
previous decision is pronounced to be plainly
erroneous, the Court must be satisfied with a
fair amount of unanimity amongst its members
that a revision of the said view is fully justified. It
is not possible or desirable, and in any case it
would be inexpedient to lay down any
principles which should govern the approach of
the Court in dealing with the question of
reviewing and revising its earlier decisions. It
would always depend upon several relevant
considerations-What is the nature of the
infirmity or error on which a plea for a review
and revision of the earlier view is based? On
the earlier occasion, did some patent aspects of
question remain unnoticed, or was the attention
of the Court not drawn to any relevant and
material statutory provision, or was any
previous decision of this Court bearing on the
point not noticed? Is the Court hearing such
plea fairly unanimous that there is such an
error in the earlier view? What would be the
impact of the error on the general administration
of law or on public good? Has the earlier
decision been followed on subsequent
occasions either by this Court or by the High
Courts? And, would the reversal of the earlier
decision lead to public inconvenience, hardship
or mischief? These and other relevant
considerations must be carefully drawn in mind
whenever this Court is called upon to exercise
its jurisdiction to review and revise its earlier
decisions. These considerations becomes still
more significant when the earlier decision
happens to be a unanimous decision of a Bench
of five learned Judges of this Court.”
JUDGMENT
27. We have kept in mind the aforesaid consideration and feel that
decision in SKF and Auto International require a re-look for the
reasons given by us above. We, thus, direct the Registry to place
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29
the matter before the Hon'ble Chief Justice of India for
constituting a Larger Bench to go into the issue involved in this
case which is of seminal importance having far reaching
ramifications.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ROHINTON FALI NARIMAN)
NEW DELHI;
DECEMBER 07, 2015.
JUDGMENT
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