Interest under Section 11AB payable on differential excise duty via supplementary invoices, despite pre-notice payment; liability ultimately abates

HC held that where differential excise duty is paid after clearance through supplementary invoices, it constitutes short-payment on the date of removal, attracting interest under Section 11AB, regardless of assessee's intent or absence of fraud. The Tribunal's view that no interest is leviable when duty is paid before issue of a Section 11A(1) notice was set aside, and the substantial question of law was answered in favour of the revenue. However, applying the policy underlying the CBEC circular on monetary limits for departmental appeals, given the low tax effect, the HC allowed the appeal but ordered that the assessee's liability to pay interest abates.

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Issues Involved:
1. Liability of the assessee to pay interest on differential duty.
2. Interpretation of Section 11AB and Section 11A(2B) of the Central Excise Act, 1944.
3. Applicability of precedents and statutory provisions to the facts of the case.
4. Impact of the Central Board of Excise and Customs circular on litigation.

Issue-Wise Detailed Analysis:

1. Liability of the Assessee to Pay Interest on Differential Duty:
The primary issue revolves around whether the assessee is liable to pay interest on the differential duty paid through supplementary invoices. The Tribunal had previously ruled in favor of the assessee, stating that the interest was not chargeable as the duty was paid voluntarily before the issuance of a show cause notice. However, the revenue challenged this decision, arguing that interest is automatically leviable on delayed payment of duty under Section 11AB of the Central Excise Act, 1944, regardless of voluntary payment.

2. Interpretation of Section 11AB and Section 11A(2B) of the Central Excise Act, 1944:
The court analyzed the statutory provisions, particularly Section 11AB, which mandates interest on delayed payment of duty. Section 11A(2B) allows an assessee to pay unpaid duty before a notice is issued and avoid a demand notice, but this does not exempt the assessee from paying interest. The court emphasized that Explanation 2 to Section 11A(2B) and Section 11AB clearly state that interest is payable from the date the duty ought to have been paid until the actual payment date, irrespective of the reason for the delay.

3. Applicability of Precedents and Statutory Provisions to the Facts of the Case:
The court referred to the judgments of the Supreme Court in Commissioner of Central Excise v. SKF India Limited and Commissioner of Central Excise v. International Auto Limited. Both cases underscored that interest is leviable on differential duty paid after the date of clearance, as it constitutes short-payment on the original date of removal. The court found that the Tribunal's reliance on the Division Bench's decision in Commissioner of Central Excise, Bangalore-III v. Bharat Heavy Electricals Limited was misplaced because it did not consider the explanations to Section 11A(2B) and was contrary to the Supreme Court's rulings.

4. Impact of the Central Board of Excise and Customs Circular on Litigation:
The court acknowledged the circular issued by the Central Board of Excise and Customs, which aims to reduce government litigation by setting monetary limits for appeals. The circular stipulates that appeals should not be filed if the duty involved is below Rs. 2 lakhs. Although this appeal was filed before the circular's effective date, the court noted that the amount involved (Rs. 27,802/-) was below the threshold. Despite answering the substantial question of law in favor of the revenue, the court decided that the assessee should benefit from the circular's underlying policy, leading to the abatement of the interest payment.

Conclusion:
The court concluded that interest is leviable on the differential duty paid by the assessee under Section 11AB, affirming the statutory provisions and Supreme Court precedents. However, due to the Central Board of Excise and Customs circular and the minimal amount involved, the court allowed the appeal but abated the interest payment, aligning with the policy to reduce litigation.

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