2019 (5) TMI 657 - SC - Central Excise

Interest on differential duty - price escalation clause - Whether interest is payable on the differential excise duty with retrospective effect that become payable on the basis of escalation clause under Section 11AB of the Central Excise Act, 1944? - Whether the decision in SKF case 2009 (7) TMI 6 - SUPREME COURT and also in International Auto 2010 (1) TMI 151 - SUPREME COURT lay down the correct law having regard to the decision of this Court in MRF case 1997 (3) TMI 104 - SUPREME COURT which was in fact rendered by a Bench of three Judges. HELD THAT - The scheme of the Central Excise Act and the Rules are a separate code. Section 11A is a provision for recovery. If there is a non-levy, non-payment, short-levy or short-payment, the same becomes recoverable under Section 11A. If there is any of the four contingencies referred to in Section 11A, then Section 11AB is attracted. The working of the parent Act is intricately intertwined with the rules, the scope of which we have already referred to. Therefore, if the value which is declared by way of self-assessment, by way of rule 6 and on which the duty is paid is not the full value then under the scheme of Section 11A read with Section 11AB and the Rules, the assessee incurs liability for interest when in a case where there is full value found and it dates back to the date of removal. In this case admittedly that at the time goods were removed the price was not fixed. The assessee was fully conscious of the fact that it was subject to variation. Assessee must be imputed with knowledge that the value it was declaring was amenable to upward revision. The circumstances were indeed clearly both apposite and appropriate for the assessee to invoke the provisions of Rule 7 and seek an order for provisional assessment. In fact, take the example of manufacturer A and manufacturer B. Both remove goods under contracts which contain escalation clauses. Manufacturer A invokes Rule 7. It seeks permission for removal of goods on provisional assessment. Though an order of final assessment has to be passed within a period of time it is capable of being extended without any time limit. Manufacturer-A on the basis of upward revision of the price with retrospective effect and acknowledging the value to be the value as provisionally assessed and as enhanced by the escalation arrived at under the escalation clause pays the duty when the escalation comes into effect on the difference in the value under Rule 7. Apart from payment of the differential excise duty manufacturer A becomes also liable to pay interest from the date when the escalation would come into play on the arrival at the higher price having retrospective operation. Manufacturer B in identical facts clears the goods on the basis of self-assessment even though he is fully aware that the value of the goods which is paid is not fixed and is amenable to upward revision. He deliberately chooses not to go in for provisional assessment. Section 11A was held to be a recovery provision as regards non-levy, non-paid, short-levy, short-paid or erroneously refunded duty. Levy of excise duty under Rule 10 of the Excise Rules, 1944 on the basis of approved classification list or price list was found to be correct levy. It did not give rise to short-levy. Undoubtedly, the amended provisions of Section 11A empowered recovery of duty even in a case where the classification list has been approved earlier and it would operate from the date of removal and not from the date on which show cause was issued. Section 11A and section 11AB as it stood at the relevant time did not provide read with the rules any other point of time when the amount of duty could be said to be payable and so equally the interest. - Decision and views expressed in SKF case(supra) and International Auto (supra) sustained. Appeal dismissed.

Summary

Issues Involved:

1. Correctness of the SKF and International Auto judgments.
2. Effect of the JK Synthetics judgment and other fiscal statute judgments on interest demand.
3. Necessity of duty determination under Section 11A(2) for interest demand under Section 11AB.
4. Impact of Rule 7 of the Central Excise Rules on provisional assessment.
5. Classification of differential duty payment as "short paid" duty.
6. Relevance of income accrual under the Income Tax Act to Section 11AB liability.

Issue-wise Analysis:

1. Correctness of SKF and International Auto Judgments:
The Supreme Court was tasked with resolving whether interest is payable on differential excise duty with retrospective effect under Section 11AB of the Central Excise Act, 1944. The SKF case held that interest is payable from the first date of the month succeeding the month in which the duty ought to have been paid. This was based on the interpretation that the goods carried a higher value at the time of sale, leading to short-payment of duty. The same view was reiterated in International Auto, distinguishing it from the MRF case, which dealt with refund claims and not retrospective price revisions.

2. Effect of JK Synthetics Judgment:
The JK Synthetics judgment established that interest provisions in fiscal statutes are substantive law. The Constitution Bench in JK Synthetics overruled the majority in Associated Cement, emphasizing that interest can only be levied if the statute explicitly provides for it. The Supreme Court in the present case acknowledged this principle but noted that Section 11AB explicitly provides for interest on short-paid duty, aligning with the substantive provision requirement.

3. Necessity of Duty Determination under Section 11A(2):
Section 11A(2) requires determination of duty for interest to be levied under Section 11AB. However, Section 11A(2B) allows for voluntary payment of duty by the assessee before any notice is issued. The Supreme Court observed that SAIL's payment of differential duty without awaiting a notice under Section 11A(1) falls under Section 11A(2B), making interest payable from the first day of the month succeeding the month in which the duty ought to have been paid.

4. Impact of Rule 7 on Provisional Assessment:
Rule 7 of the Central Excise Rules allows for provisional assessment when the value or rate of duty is uncertain. The Supreme Court noted that SAIL should have invoked Rule 7 due to the provisional nature of the prices. The final assessment under Rule 7 would have triggered interest liability from the first day of the month succeeding the month for which the amount is determined, reinforcing the interest liability under Section 11AB.

5. Classification of Differential Duty Payment as "Short Paid":
The Supreme Court examined whether differential duty payment due to retrospective price revision constitutes "short paid" duty. It concluded that short-payment occurs when the initially declared value is provisional and subject to retrospective escalation. The differential duty paid later is indeed short-payment, attracting interest under Section 11AB from the date the duty was originally payable.

6. Relevance of Income Accrual under the Income Tax Act:
The appellants cited income tax cases to argue against interest liability. However, the Supreme Court distinguished these cases, noting that income accrual principles under the Income Tax Act do not apply to excise duty liability under the Central Excise Act. The statutory scheme under the Central Excise Act and the Rules mandates interest on short-paid duty from the date it was originally due, irrespective of when the price escalation is agreed upon.

Conclusion:
The Supreme Court upheld the judgments in SKF and International Auto, affirming that interest is payable on differential excise duty with retrospective effect from the first day of the month succeeding the month in which the duty ought to have been paid. The appeals were dismissed, reinforcing the statutory framework of Section 11AB and the Central Excise Rules.