2015 (6) TMI 300 - HC - Central Excise

Appellant liable for interest under Central Excise Act despite no demand notice

The court affirmed the appellant's liability to pay interest under Section 11AB of the Central Excise Act on the duty paid through supplementary invoices. ... Interest under Section 11AB on delayed payment of duty - payment of differential duty under Section 11A(2B) by issuance of supplementary invoice - Explanation 2 to Section 11A(2B) - obligation to pay interest despite voluntary payment - construction of Sections 11A, 11AA and 11AB in light of judicial precedent - precedential effect of Supreme Court decision in SKF India Ltd.Payment of differential duty under Section 11A(2B) by issuance of supplementary invoice - interest under Section 11AB on delayed payment of duty - Explanation 2 to Section 11A(2B) - obligation to pay interest despite voluntary payment - Whether interest under Section 11AB is payable on differential duty paid by issuance of supplementary invoices. - HELD THAT: - The Court held that payment of differential duty upon issuance of supplementary invoices falls within Section 11A(2B) and is not exempt from interest by virtue of Explanation 2 to Section 11A(2B) read with Section 11AB. Relying on the Supreme Court in SKF India Ltd., the Bench observed that Section 11A(2B) permits the assessee to make voluntary payment to avoid a demand notice but Explanation 2 expressly declares that such payment remains subject to interest under Section 11AB. The Court further noted the consistent exposition in International Auto Ltd., that differential price signifies an understated value on the date of removal and results in short-levy/short-payment, attracting interest as compensation for loss of revenue. The Karnataka High Court decision in BHEL was held inconsistent with the Supreme Court's authoritative view and could not be followed. Applying these principles to the facts, the Court found no merit in the appellant's contention that absence of a demand precludes interest liability and upheld the Tribunal's finding that interest was payable. [Paras 7]Interest under Section 11AB is payable on differential duty paid by issuance of supplementary invoices; the Tribunal's confirmation of interest is sustained.Construction of Sections 11A, 11AA and 11AB in light of judicial precedent - precedential effect of Supreme Court decision in SKF India Ltd. - Whether the introduction of Section 11AA (Finance Act, 2011) or the dismissal of departmental SLP in BHEL alters the liability to pay interest on voluntary payment of differential duty. - HELD THAT: - The Court held that the amendment introducing Section 11AA does not advance the appellant's case because the liability to pay interest on delayed payment of duty already existed under Section 11A(2B) read with Explanation 2 and Section 11AB during the relevant period. The Bench observed that the Supreme Court in SKF India Ltd. had identified ambiguities that led to later amendment, but the prior statutory scheme clearly imposed interest on voluntary payments of differential duty. The fact that the Revenue's SLP against the Karnataka High Court decision in BHEL was dismissed did not justify departing from the Supreme Court's authoritative rulings; additionally, a subsequent Division Bench of the Karnataka High Court held BHEL per incuriam. On these grounds the appellant's contention based on Section 11AA and the BHEL order was rejected. [Paras 7, 8]Amendment by insertion of Section 11AA and the departmental SLP dismissal in BHEL do not negate the pre-existing liability to interest; the appellant's contention is repelled.Final Conclusion: Appeals dismissed; the Tribunal's confirmation of interest under Section 11AB on differential duty paid by supplementary invoices is upheld and the penalty set aside by the Tribunal is not interfered with. Issues Involved:1. Liability to pay interest under Section 11AB of the Central Excise Act, 1944 on raising supplementary invoices.2. Ignoring the decision of the Karnataka High Court in the Bharat Heavy Electricals Ltd. case.Detailed Analysis:1. Liability to Pay Interest Under Section 11AB of the Act on Raising Supplementary Invoices:The primary issue was whether the appellant was liable to pay interest under Section 11AB of the Central Excise Act on the differential duty paid through supplementary invoices. The appellant argued that interest under Section 11AB would apply only when there is a demand by the department due to short payment and not when the duty is paid voluntarily upon receiving additional consideration later. The appellant relied on the Karnataka High Court decision in Bharat Heavy Electricals Ltd. and tried to distinguish the Supreme Court decision in SKF India Ltd.The court referred to Sections 11A(1), 11A(2B), and 11AB of the Act. It emphasized the Supreme Court's interpretation in SKF India Ltd. which categorizes non-payment or short payment of duty into intentional and non-intentional defaults. The court noted that Section 11A(2B) allows assessees to pay the unpaid duty voluntarily before the issuance of a demand notice, but such payment is not exempt from interest under Section 11AB. The Supreme Court in SKF India Ltd. clarified that interest is levied for the loss of revenue on any count, and the payment of differential duty through supplementary invoices falls under Section 11A(2B).The court concluded that the appellant's argument that interest is not payable unless there is a demand notice has no merit, as the Supreme Court explicitly held that interest is chargeable on delayed payment of duty regardless of the reason for the delay. Therefore, the appellant's liability to pay interest under Section 11AB was affirmed.2. Ignoring the Decision of the Karnataka High Court in Bharat Heavy Electricals Ltd. Case:The appellant contended that the Tribunal erred by ignoring the Karnataka High Court's decision in Bharat Heavy Electricals Ltd., especially since the Supreme Court dismissed the departmental appeal against this decision.The court observed that the decision in Bharat Heavy Electricals Ltd. was not consistent with the Supreme Court's ruling in SKF India Ltd., which clearly stated that differential duty paid through supplementary invoices is subject to interest under Section 11AB. The court also noted another Karnataka High Court decision in Presscom Products, which declared the Bharat Heavy Electricals Ltd. judgment as per incuriam for not considering the explanation to sub-section (2B) of Section 11A.The court further stated that the dismissal of the Special Leave to Appeal by the Supreme Court against the Bharat Heavy Electricals Ltd. decision does not imply endorsement of its reasoning. Given the Supreme Court's clear stance in SKF India Ltd., the court found no reason to deviate from this precedent.Conclusion:The court dismissed the appeals, holding that the appellant is liable to pay interest under Section 11AB on the differential duty paid through supplementary invoices. It also upheld the Tribunal's decision to ignore the Karnataka High Court's ruling in Bharat Heavy Electricals Ltd., reaffirming the applicability of the Supreme Court's interpretation in SKF India Ltd. Consequently, the substantial questions of law were answered against the assessee, and the appeals were dismissed with no costs.