2015 (12) TMI 594 - SC - Central Excise

Excise duty on price variation differential amounts not short-paid at clearance time, no Section 11AB interest liability applies

The SC held that excise duty on differential amounts arising from price variation clauses cannot be considered short-paid at the time of goods clearance, ... Demand of interest - differential duty paid on account of price variation - Supplementary invoices - Interpretation of expression 'ought to have been paid' - differential duty arose at a later date due to price variation clause in the contract for sale - Compliance of the provisions of Section 11AB. Held that:- The Bench did not consider the effect of the expression 'ought to have been paid' occurring in Section 11AB of the Act. It is undeniable that under Section 4 of the Act, the excise duty is to be paid on the 'transaction value' and such a transaction value has to be seen at the time of clearance of the goods. Indubitably, when the goods were cleared, the excise duty was paid taking into consideration the price that was actually charged and was reflected in the invoices raised for the said purpose. The Department cannot plead that as on that date, this was not the price charged. No doubt, when the differential payment is made at a later date, further amount towards excise duty becomes payable as a result of said differential in price. Further, such an event took place at a subsequent date. As on the date when the goods were cleared, there was no certainty that there would be price escalation and it was beyond comprehension to ascertain the exactitude of such an escalation. It would be impossible to expect the assessee to pay the excise duty, at the time of clearance of the goods, on the basis of price escalation that took place at a later date in future. Therefore, as on the date of clearance when excise duty was paid, it could not be treated as 'short paid' on the said date. As a consequence when the principal amount, namely, the excise duty itself was not payable (i.e. on the differential) on the date of clearance of the goods, there cannot be any question of law to pay interest. Registry is directed to place the matter before the Hon'ble Chief Justice of India for constituting a Larger Bench to go into the issue involved in this case which is of seminal importance having far reaching ramifications. - Matter referred to larger bench. Issues Involved:1. Whether interest is leviable under Section 11AB of the Central Excise Act, 1944, on the differential duty amount paid under supplementary invoices due to price increase by virtue of a price variation clause in the sale contract.Detailed Analysis:Background and Facts:The appellant, a public sector undertaking, sold iron and steel products to the Indian Railways. Initially, excise duty was paid based on the price at the time of removal of goods. Later, the price was revised upwards, and the appellant paid the differential duty voluntarily. The Revenue demanded interest on this differential duty under Section 11AB of the Central Excise Act, 1944, arguing that the duty was short-paid at the time of clearance. The Tribunal upheld this demand, leading to the current appeal.Legal Question:The core issue is whether interest is leviable under Section 11AB of the Act on the differential duty amount paid due to price variation.Relevant Provisions:Section 11AB of the Central Excise Act, 1944, states that interest is payable on any duty that has not been levied, paid, short-levied, short-paid, or erroneously refunded. The interest is calculated from the first date of the month succeeding the month in which the duty ought to have been paid until the date of payment.Key Judgments Considered:1. CCE v. SKF India Ltd. (2009) 13 SCC 461:- Facts: Similar to the present case, where differential duty arose due to retrospective price revision.- Held: Interest was payable under Section 11AB as the duty was short-paid at the time of clearance.- Reasoning: The Court emphasized that interest is for the loss of revenue and is payable on delayed or deferred payment of duty, regardless of the reason for the delay.2. CCE v. International Auto Limited (2010) 2 SCC 672:- Facts: Similar to SKF India Ltd., involving retrospective price revision.- Held: Followed SKF India Ltd., holding that interest was payable on the differential duty.- Additional Reasoning: Emphasized that the differential price signifies that the value at the time of removal was understated, thus attracting interest under Section 11AB.Arguments by the Appellant:1. Distinguishing SKF and International Auto:- The appellant argued that these cases were distinguishable, but the Court found the factual scenarios almost identical.2. Interpretation of 'ought to have been paid':- The appellant contended that the expression 'ought to have been paid' should be understood as the time when the price is agreed upon by the buyer and seller, not at the time of clearance.- The appellant argued that the liability to pay duty on the revised price arises only when the revised price is sanctioned by the buyer.Court's Analysis:1. Transaction Value and Timing:- The Court noted that under Section 4 of the Act, the excise duty is paid on the 'transaction value' at the time of clearance. The price declared in the invoice at the time of removal is the transaction value.- The Court found that it is impossible to expect the assessee to pay excise duty on a future price escalation at the time of clearance.2. Interest on Differential Duty:- The Court held that interest under Section 11AB is not payable from the date of clearance but from the date the differential duty is due, i.e., when the revised price is agreed upon.- The Court distinguished between the quantum of duty and the timing of its payment, stating that interest should start from the date of agreement on the escalated prices.3. Revisiting SKF and International Auto:- The Court noted that these judgments did not consider the expression 'ought to have been paid' and the principle that duty is based on the price at the time of removal.- The Court found the reasoning in SKF and International Auto, which emphasized compensating the Department for loss of revenue, contrary to the Constitution Bench judgment in J.K. Synthetics Limited v. Commercial Taxes Officer (1994) 4 SCC 276.Conclusion:The Court directed that the matter be placed before a Larger Bench to re-examine the issue, as the decisions in SKF and International Auto require reconsideration. The Court emphasized the need to maintain the principle that duty is based on the transaction value at the time of removal and that interest should be calculated from the date the differential duty becomes due.Summary:The Supreme Court addressed whether interest under Section 11AB of the Central Excise Act, 1944, is payable on differential duty due to price revision. The Court analyzed previous judgments, the statutory provisions, and the principles of transaction value and timing of duty payment. It concluded that interest should be calculated from the date the differential duty is due, not from the date of clearance. The matter was referred to a Larger Bench for reconsideration of the judgments in SKF and International Auto.