2008 (2) TMI 355 - AT - Central Excise

Valuation - Whether the assessees are liable to pay interest us/ 11AB on differential duty paid under supplementary invoices issued in the wake of revision of price after removal of the goods - Whether revised price received from buyer is includible in T.V. of goods, Whether interest is payable 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 etc. - matter referred to Larger Bench

Summary

Issues Involved: Liability to pay interest under Section 11AB of the Central Excise Act on differential duty paid via supplementary invoices after price revision post-removal of goods; applicability of Section 11A(2B) and Rule 7 of the Central Excise Rules, 2002; and whether the additional amount paid by the buyer is part of the 'transaction value' under Section 4 of the Central Excise Act.

Issue-Wise Detailed Analysis:

Liability to Pay Interest under Section 11AB:
The central issue in these appeals is whether the assessees are liable to pay interest under Section 11AB of the Central Excise Act on the differential duty paid via supplementary invoices issued after the price of the goods was revised post-removal. The differential duty was paid without interest, and the Department demanded interest under Section 11AB, arguing that the payment of differential duty was under sub-section (2B) of Section 11A of the Act. The assessees contended that the additional duty paid was not an amount that 'ought to have been paid at the time and place of removal' and thus was not 'short-paid' or 'short-levied' under Section 11A(2B), making Section 11AB inapplicable.

Applicability of Section 11A(2B) and Rule 7:
The Department argued that the differential value realized by the assessees from their buyers under supplementary invoices is an integral part of the transaction value, and therefore, the differential duty paid on this value is a duty that ought to have been paid at the time of removal of the goods. This argument was supported by CBEC Circular F. No. 6/20/2005-CX.1 dated 14-3-2006 and judicial precedents such as Gujarat State Fertilizers & Chemicals Ltd. v. Commissioner of Central Excise and Inducto Casts v. Commissioner of Central Excise. The Department also argued that the assessments should be considered provisional under Rule 7 of the Central Excise Rules, 2002, due to the price escalation clause in the contracts or subsequent price escalation agreements.

Transaction Value under Section 4:
The Tribunal examined whether the additional amount paid by the buyer towards the price of the goods in terms of the supplementary invoice issued by the assessee after removal of the goods can be considered part of the 'transaction value' under Section 4 of the Central Excise Act. The Tribunal noted that the transaction value includes any amount the buyer is liable to pay to the assessee in connection with the sale of the goods, whether payable at the time of sale or at any other time. Thus, the differential price collected subsequently due to price revision would be part of the transaction value, and the differential duty paid on this value is a duty short-paid with reference to the time of removal of the goods.

Judicial Precedents and Compensation Principle:
The Tribunal referred to the principle of compensation as held by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. Commissioner of Income Tax, which states that the levy of interest on tax is in the nature of compensation for the Revenue being deprived of the benefit of the differential duty for the period it remained unpaid. The Tribunal also considered the decisions in UCAL Systems Ltd. v. Commissioner of Central Excise, Chennai, and Commissioner of Central Excise, Bhopal v. D.K. Electrical Industries & Ors., which supported the view that interest under Section 11AB is payable on the differential duty paid under supplementary invoices.

Larger Bench Reference:
Given the conflicting views from different benches and the Hon'ble Bombay High Court's ruling against the levy of interest under Section 11AB on duty paid under supplementary invoices, the Tribunal decided to refer the matter to a Larger Bench. The issues to be considered by the Larger Bench include whether the additional amount paid by the buyer towards the price of the goods in terms of the supplementary invoice is part of the 'transaction value' under Section 4, whether the payment of duty under the supplementary invoice is covered by sub-section (2B) of Section 11A, and whether interest is leviable under Section 11AB from the first date of the month succeeding the month in which duty was initially paid.

Conclusion:
The Tribunal concluded that the differential duty paid under supplementary invoices is a duty short-paid with reference to the time of removal of the goods, and interest under Section 11AB is payable on this amount. However, due to conflicting judicial precedents, the Tribunal referred the matter to a Larger Bench for a conclusive decision on the issues involved.