Central Excise – Duty - Supplementary invoice due to revision in prices – Interest payable? – Matter referred to Larger Bench of CESTAT
By TIOL News Service
CHENNAI, APR 15, 2008 : IN all these appeals, the substantive issue is whether the assesses are liable to pay interest under Section 11AB of the Central Excise Act on differential duty paid under supplementary invoices issued in the wake of revision of price after removal of the goods. At the time of removal of the goods, duty was paid on the assessable value based on the price originally agreed between the assessee and the buyer, Subsequently, there was upward revision of price of the goods due to increase of cost of raw material and/or other factors and, consequently, the assessee issued supplementary invoice for realizing the differential price from the buyer and paying differential duty. Such payment of differential duty was made without payment of interest. In most of the cases, there was no express provision for variation of price in the contract between the assessee and the buyer. However, in such cases also, the buyer agreed for price hike thereby enabling the assessee to realize the differential price and pay differential duty. In other cases, there was price variation clause in the relevant contract, which was invoked by the assessee for realizing the differential price from the buyer by issuing supplementary invoice. In all cases, the differential amounts of duty were paid without interest. In each case, after the assessee paid differential duty [without interest] under supplementary invoice, the department issued show-cause notice demanding interest on such duty under Section 11AB for the period from the first day of the month succeeding the month in which the original duty payment was made to the date of payment of the differential duty. This demand of interest was based on the premise that the payment of differential duty subsequent to the clearance of the goods was one under sub-section (2B) of Section 11A of the Act. The show-cause notice also proposed penalty for the default of payment of interest. The assesses contested the demand of interest by submitting to the effect that they had correctly and conclusively assessed the duty payable on the goods as at the time and place of removal and had paid the duty without any delay. They submitted that the additional duty paid under supplementary invoice consequent to revision of price was not an amount of duty which ‘ought to have been paid at the time and place of removal’ and, therefore, it was not a duty ‘short-paid’ or ‘short-levied’ within the meaning of these expressions under Section 11A (2B) and hence Section 11AB was not applicable. In some cases, this plea of the assessees was accepted by the Commissioner (Appeals) and, in such cases, the Revenue is appeal before the Tribunal. In other cases, the Commissioner (Appeals) or the Commissioner, as the case may be, rejected the plea of the assessees and sustained the case of the Revenue and, consequently, the assessees are in appeal.
Not covered under Section 11D: At the outset, the Tribunal rejected the proposition that the duty paid under supplementary invoices in these cases is an amount collected in excess from the buyer and is, therefore, recoverable only in terms of Section 11D of the Act. This provision applies where a person who is liable to pay duty of excise on the goods sold by him collects from the buyer any amount in excess of the duty assessed/determined and paid on such goods, as representing duty of excise. The excess amount, collected as duty without the sanction of law, is not recognized as ‘duty of excise’ and the same is required to be paid to the Central Government under Section 11D along with interest under Section 11DD. In the present appeals, it is not the case of the assessees that they collected from the buyers any amount (as representing duty of excise) in excess of the duty assessed and paid. The expression “duty assessed and paid” found in Section 11D(1) covers not only the duty paid at the time of removal of the goods but also the differential duty paid later. It would follow that Sections 11D and 11DD are not applicable to the present cases.
No Deemed value after the advent of Transaction Value: The concept of deemed value held the field only upto 30.6.2000. From 1.7.2000, we have an essentially different concept viz. transaction value as defined under Section 4 (3)(d) of the Central Excise Act. Admittedly, for the purpose of payment of duty, all the cases here are covered by Section 4(1)(a) of the Central Excise Act and accordingly the assessable value for payment of duty is the transaction value. Where the amount of duty self-ascertained and paid by the assessee under intimation to the proper officer of Central Excise in terms of the main part of sub-section (2B) of Section 11A is still short of the amount due, the said officer can determine the short-paid amount of duty and proceed to recover such amount from the assessee under sub-section (1) of Section 11A. This is the situation envisaged under the proviso to sub-section (2B).
The defence of impossibility was taken to resist the demand of interest. The argument is that it was impossible for the assessee to have paid the differential amount of duty [which was occasioned by subsequent price revision] at the time of clearance of the goods and therefore it cannot be said that such duty “ought to have been paid” at the time of clearance of the goods. It is argued that the law cannot ask a person to do the impossible. This “doctrine”, in our view, cannot be invoked by any person who himself failed to do the possible, to do what the law required him to.
In the present case, the assesses were placed in such a situation at the time of removal of the goods that they should have resorted to provisional assessment under Rule 7 of the Central Excise Rules, 2002. Had they done so, they would have been liable to pay interest on the amount of duty paid [upon finalization of the assessment under sub-rule (4) of Rule 7] on the differential value of the goods realized from the buyer, from the first day of the month succeeding the month for which the provisional assessment was made, till the date of payment of the duty. They could not have avoided payment of such interest by pleading lex non cogit ad impossibilia. The defence might, perhaps, be available to an assessee in procedural matters. It cannot be taken against the substantive provisions of a taxing statute providing for compulsory levy.
The levy of interest on tax is in the nature of compensation as held by the Hon’ble Supreme Court in the case of Central Provinces Manganese Ore Co. In a contract, compensation is paid by one of the contracting parties to the other for any loss or injury caused to the latter by the former by some conduct in breach of the terms of the contract. In revenue matters, it has to be paid in the form of interest by an assessee to the Government where any tax due is withheld for no fault of the Government. In essence, one’s liability to pay compensation arises from his nonfeasance or misfeasance in discharging contractual or statutory obligation. The liability of the assessees in the present cases to pay interest to the Government under Section 11AB of the Central Excise Act has, therefore, to be examined with reference to their conduct. They were aware, at the time of removal of the goods from factory, that the originally agreed price was not sufficient to meet the costs incurred in connection with the manufacture and sale of the goods. This is the reason why they invoked the price escalation clause in the contract or, in the absence of such clause, initiated negotiations with the buyer for enhancement of the price. The buyers were convinced of the need to enhance the price and, therefore, amended their purchase orders, thereby enabling the assessees to issue supplementary invoices for realizing differential price and paying differential duty. In none of these cases did any assessee claim interest from the buyer on the differential price belatedly paid. This would mean that, between the assessee and the buyer, the differential price was deemed to have been paid at the time of removal of the goods itself. If that be so, between the assessee and the department also, the differential price should be deemed to have been paid at the time of removal of the goods itself. If that be so, between the assessee and the department also, the differential price should be deemed to have been paid at the time of removal of the goods.
In the circumstances, the Revenue is entitled to plead that the payment of differential duty under supplementary invoice was payment of duty short-paid with reference to the date of removal of the goods. The denial of interest on such amount under Section 11AB would mean refusal to compensate the Government for the loss incurred on account of such duty having remained unpaid for a period of time. The assessees had a statutory obligation to resort to provisional assessment, but this was not done, thereby depriving the Revenue of its right to levy interest under sub-rule (4) of Rule 7 of the Central Excise Rules, 2002.
Having regard to this conduct of the assesses, Tribunal took the view that, on the principle of compensation, the assessees are liable to pay interest under Section 11AB on the differential duty covered by the supplementary invoices for the period specified under that Section.
But the Tribunal in some other cases had held that no such interest was payable and the Bombay High Court had also held so.
So the Tribunal referred the matter to a Larger Bench to consider and decide on the following issue:-
(a) Whether, in the facts of these cases, the additional amount paid by the buyer towards price of the goods in terms of the supplementary invoice issued by the assessee after removal of the goods can be considered to be part of the ‘transaction value’ under Section 4 of the Central Excise Act;
(b) Whether the payment of duty under the supplementary invoice by the assessee is covered by sub-section (2B) of Section 11A of the Act;
(c) Whether, on the amount of duty paid under the supplementary invoice, interest is leviable under Section 11AB from the first date of the month succeeding the month in which duty was paid in the first instance in terms of the original invoice.