2013 (8) TMI 225 - HC - Central Excise

Period of limitation for Recovery of interest on account of retrospective revision of the prices demand notice issued after 4 years - Held that - Relying upon the decision in the case of Commissioner of Central Excise versus International Auto Limited, 2010 (1) TMI 151 - SUPREME COURT OF INDIA , it was held that interest is charged to compensate for loss caused because of late payment of duty. The said loss should be compensated - Interest chargeable under Section 11AB was payable on the duty paid under Section 11A(2B) under the supplementary invoice on the price differential on account of retrospective price escalation received by the assessee and if the same has not been paid, the same would be recovered from the assessee. Period of limitation for demand of interest in case change in price with retrospective period Held that - Payment of interest is to be made under Section 11A and, therefore, the period of limitation prescribed therein would equally apply as has been held by the Delhi High Court in the case of Kwality Ice Cream Company 2012 (1) TMI 88 - Delhi High Court and Gujarat High Court in Gujarat Narmada Fertilizers Company Limited 2012 (4) TMI 309 - GUJARAT HIGH COURT . These judgments have relied upon the decision of the Supreme Court approving the view of the tribunal in TVS Whirlpool Limited 1999 (10) TMI 701 - SUPREME COURT OF INDIA - The period of limitation prescribed for demand of duty under Section 11A is normally one year and, in exceptional circumstance of a case falling under the proviso to Section 11A(1), the period of limitation is five years. But that would be applicable only in case of misstatement, fraud, concealment etc., which is not the case here. As such, in the present case, the period of limitation for the demand for duty would be one year. By the same logic, the period of limitation for demand of interest thereon would be one year Decided in favor of Assessee.

Issues Involved:
1. Whether the Tribunal erred in holding that the extended period of limitation under Section 11A could be invoked for recovery of interest due to retrospective revision of prices.
2. Applicability of interest under Section 11AB on differential duty paid due to retrospective price escalation.
3. Whether the notice for recovery of interest should be issued within the limitation period prescribed under Section 11A(1).

Detailed Analysis:

Issue 1: Extended Period of Limitation under Section 11A
The core issue was whether the Tribunal erred in holding that the extended period of limitation under Section 11A could be invoked for the recovery of interest due to retrospective revision of prices. The appellant, a manufacturer of DDT powder and Malathion TG, had paid differential duty based on revised prices retrospectively. The respondent issued show cause notices for interest on the belated deposit of excise duty, invoking Section 11A of the Excise Act, 1944. The Tribunal upheld that interest was payable under Section 11AB on the differential duty paid due to retrospective price escalation. The Tribunal noted that the appellant had paid the differential duty suo motu without any notice from the Revenue, and interest is charged to compensate for the loss caused due to late payment of duty, as held by the Supreme Court in Commissioner of Central Excise vs. International Auto Limited.

Issue 2: Applicability of Interest under Section 11AB
The Tribunal held that interest under Section 11AB was payable on the duty paid under Section 11A(2B) on the supplementary invoice due to retrospective price escalation. The Tribunal's decision was based on the principle that interest compensates for the loss caused by the late payment of duty. This position was supported by the Supreme Court's observation in International Auto Limited that interest should be charged to compensate for the loss due to late payment.

Issue 3: Limitation Period for Recovery of Interest
The Tribunal examined whether the notice for the recovery of interest should be issued within the limitation period prescribed under Section 11A(1). Section 11A(1) prescribes a one-year period for recovery of excise duty, which can be extended to five years in cases of fraud, collusion, wilful mis-statement, or suppression of facts. The Delhi High Court in Kwality Ice Cream Company held that the period of limitation for demanding interest should be the same as for the principal amount. The court ruled that the normal period of limitation for demand of duty is one year, and in exceptional cases involving fraud or misstatement, it is five years. Since there was no allegation of fraud or collusion in the present case, the one-year limitation period applied. Consequently, the show cause notices issued for interest recovery were beyond the one-year limitation period and thus barred by limitation.

Conclusion:
The High Court concluded that the period of limitation for recovery of interest should be the same as for the principal amount, i.e., one year unless there is fraud or collusion, which was not the case here. Therefore, the show cause notices for interest recovery were barred by limitation. The appeals were disposed of in favor of the appellant, and the question of law was answered affirmatively in favor of the appellant and against the respondent Revenue. There was no order as to costs.

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