By TIOL News Service

NEW DELHI, JULY 10, 2009: THE issue is finally settled.

The Supreme Court judgement started with these observations, “Just a few weeks ago in Union of India Vs. M/s Rajasthan Spinning & Weaving Mills (Appeal arising from SLP (C) No.15927 of 2007) – [2009-TIOL-63-SC-CX] we had the occasion to examine the nature and scope of the penalty provision in the Central Excise Act as contained in section 11AC, one of the four sections, forming a quartet, concerning recovery of unpaid duty, interest on deferred payment/realisation of duty and penalty for non-payment of duty. In this case we are called upon to consider the conditions that would attract the levy of interest on excise duty not levied or short levied, not paid or short paid or erroneously refunded as provided under sections 11A, 11AA and 11AB of the Act. It may thus be seen as the sequel to the earlier decision in M/s. Rajasthan Spinning & Weaving Mills.”

The respondent-assessee is engaged in the manufacture and sale of ball- bearings and textile machine parts. 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 demanded from its customers the balance of the higher prices and issued to them supplementary invoices. At the same time it 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. The assessee was given a notice dated April 4, 2006 demanding Rs.95,590/- as interest on delayed payment of duty under section 11AB of the Central Excise Act and further asking it to show cause why penalty may also not be imposed on it. The Assistant Commissioner Central Excise, Pune II Division, confirmed the demand of interest by his order dated June 5, 2006 and further imposed a penalty of Rs. 5,000/- against the assessee. The assessee took the matter in appeal before the Commissioner (Appeals) Central Excise, Pune, who by his order dated August 30, 2006 allowed the appeal and set-aside the order of the Assistant Commissioner. The Revenue then brought the matter before the Customs, Excise and Service Tax Appellate Tribunal but its appeal was dismissed by order dated January 3, 2008 - 2008-TIOL-607-CESTAT-MUM. The Tribunal, following certain decisions of the Bombay High Court held that no interest was chargeable where there was no time-gap between the payment of the differential duty and issuance of supplementary invoices to the customers on the basis of upward revision of prices in respect of the goods sold earlier.

Aggrieved by the order of the Tribunal, the Revenue is before the Supreme Court.

The Supreme Court observed,

“In Rajasthan Spinning & Weaving Mills we noted that the three issues of recovery, interest and penalty arising from non-levy or short levy of duty, non-payment or short payment of duty or erroneous refund of duty are dealt with under sections 11A (recovery of duties), 11AA an 11AB (interest on delayed payment of duty) and 11AC (penalty for short levy or non levy of duty) of the Act. Section 11A is a long section which has become longer by the insertion of sub-sections by later amendments.

Of the two sections dealing with interest section 11AA relates to the period from expiry of three months from the date of determination of the differential duty under sub-section (2) of section 11A till the date of payment and section 11AB is in regard to 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.”

The Court further observed, “If the object of the law is to state clearly and 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. 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 11AA and 11AB. Also, there is much scope to reorganise all the different subsections of section 11A and to present the scheme of that section in a more coherent and readable form.”

This was an obiter dictum, but the Supreme Court had to deal with the case in hand with the law as it stands now.

The Supreme Court explained the provisions as follows:

Section 11A puts the cases of non-levy or short levy, non-payment or short payment or 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 mis-statement 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. Section 11A, 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 (1A) of section 11A and the cases where the non-payment or short payment of duty is not intentional under sub-section (2B).

Sub-section (2B) of section 11A 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 11AB, 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. What is stated in Explanation 2 to sub-section (2B) is reiterated in section 11AB 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 (2B) of section 11A, 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 mis- statement 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 (11A, 11AA, 11AB & 11AC) 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 (2B) of section 11A of the Act.

The Bombay High Court, Aurangabad Bench, in its decision in The Commissioner of Central Excise, Aurangabad vs. M/s Rucha Engineering Pvt. Ltd. - 2007-TIOL-785-HC-MUM-CX that was relied upon by the Tribunal for dismissing the Revenue's appeal took the view that there would be no application of section 11A (2B) or section 11AB 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. In M/s Rucha Engineering the High Court observed as follows:

¶It is evident that the section (11AB) comes into play if the duty paid/levied is short. Both, the Commissioner (Appeals) and the 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. 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 11A (2) and 11A (2B) were not applicable as the situation occurred in the instant case was quite different, section 11AB (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.

Incidentally this order of the High Court had been set aside by the Supreme Court and remanded to the Tribunal. This fact was obviously not brought to the notice of the Supreme Court.

The Supreme Court was unable to subscribe to the view taken by the High Court. 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 (2B) of section 11A and attracted levy of interest under section 11AB of the Act.

So the Supreme Court set aside the judgments and orders passed by the Tribunal and the Commissioner (Appeals) and restored the order passed by the Assistant Commissioner in so far as charge of interest is concerned. On the facts of this case there is no question of imposition of any penalty. Hence, that part of the order of the Assistant Commissioner is set aside.

(See 2009-TIOL-82-SC-CX in 'Excise')