INVOCATION OF DOCTRINE LEX NON COGIT AD IMPOSSIBILIA IN TAX MATTERS

[Mr. M. GOVINDARAJAN]

                         The doctrine 'lex non cogit ad impossibilia' means impossibility to comply with the legal provisions. This doctrine may be used as defence in legal proceedings. Whether this doctrine can be invoked in tax matters. For this we may refer the case law 'Lucas TVS Ltd., V. Commissioner of Central Excise, Chennai' - 2009 -TMI - 32247 - CESTAT CHENNAI.

                        In the above said case the assessees are engaged in the manufacture of excisable goods. During the material period the assessees paid excise duty on the goods as per the provisions of Central Excise Act, 1944 ('Act' for brevity) and Central Excise Rules, 2002 ('Rules' for brevity). The said payment of duty was at the time of removal of the goods on the assessable value based on the price originally agreed between the assessee and their buyers. Subsequently there was upward revision of price of the goods due to the increase of cost of raw mater and/or other factors and, consequently, the assessees 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. 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 assessees contested the show cause notice by submitting to the effect that they had correctly and conclusively assessed the duty payable on the goods at the time and place of removal and had paid the duty without any delay. It was further 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 used in Section 11A (2B) and hence section 11AB was not attracted.

                         The above case travelled from the Adjudicating Authority to the Tribunal. The Tribunal referred the case to the Larger Bench for consideration to give decision on four issues framed by the tribunal. The Revenue reiterated that the action taken by the Department was correct and the assessees are liable to pay interest and also subjected to penalty under the provisions of Act. The Revenue submitted that the differential value realized by the assessees from their buyer under supplementary invoice was an integral part of the transaction value of the goods and therefore the differential duty paid on the differential value would be a duty which ought to have been paid at the time of removal of the goods. Thus there was a short payment of duty at the time of clearance of the goods, which attracted sub section (2B) of Section 11A of the Act. Consequently, interest under Section 11AB was payable as the differential duty paid under supplementary period, for the period from the day of the month succeeding month in which such duty ought to have been paid to the date of actual payment of the duty. The Circular dated 14.3.2006 also clarified that interest under section 11AB was chargeable from the date of original clearance in cases where supplementary invoices were raised due to the upward revision of price of goods. The Revenue further contended that the assessment made by the assessees at the time of clearance of goods shall be deemed to provisional assessment. The assessments on the supplementary invoice should be deemed to be finalization of the assessments made at the time of removal of the goods. As such the assessees are liable to pay interest on the differential duty paid. Further the levy of the interest is of compensatory nature.

                          One of the assessees invoked the doctrine of lex non cogit ad impossibilia in his bid to establish that the duty paid under supplementary bills could hardly partake the character of 'duty ought to have been paid' and therefore Section 11AB was not applicable.

                          The Larger Bench observed that the defence of impossibility was taken by the assessee 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 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 impossible.

                          Sub section (1) of Section 11AB provides that 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 is liable to pay duty as determined under sub section (2) or has paid the duty under sub section (2B) of Section 11A shall, in addition to the duty, be liable to pay interest at such rate now below (ten percent) and not exceeding thirty six per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette from the first date of the month succeeding the month in which the duty ought to have been paid under this Act or from the date of such erroneous refund, as the case may be, but for the provisions contained in sub section (2), or sub section (2B) of section 11A till the date of payment of such duty.

                          The Larger Bench observed that the assessee with reference to the expression 'duty ought to have been paid' came up with the defence of impossibility by citing a doctrine. The Larger Bench found a situation analogy between the finalization of provisional assessment under Rule 7 and the ascertainment of differential duty under Section 11A(2B) of the Act. A manufacturer who, at the time of removal of excisable goods, foresees or anticipates price revision, normally resort to provisional assessment at the time of removal of the goods and, when the assessment is finalized on the basis of the price increase at a later point of time, he pays differential duty along with interest vide Rule 7(4). In doing so, he accepts the fact that there is a short levy or short payment and deems that the differential duty is a duty which ought to have been paid at the time of removal of the goods. Where instead of following this normal statutory provisions, the assessee ascertains the differential duty (payable on account of price enhancement) and pays it up under Section 11A(2B), is he not liable to pay interest?  In the view of Larger bench he is liable under section 11AB constructed harmoniously with the corpus juris of Central Excise. 

                          The Larger Bench held that the doctrine cannot be invoked by any person who himself failed to do the possible, to do that the law required him to. In the present case the assessee was placed in such a situation at the time of removal of the goods that they should resort to provisional assessment under Rule 7.  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. The assessee could not have avoided payment of such interest by pleading lex non cogit ad impossibilia. The defence might be available to an assessee in procedural matters. It cannot be taken against the substantive provisions of a taxing statute providing for compulsory levy.