Excise interest on later differential duty under price escalation clause referred to a Larger Bench for reconsideration.

Interest under Section 11AB of the Central Excise Act on differential duty arising from later price escalation under a contractual price variation clause remained unresolved, as the Court examined whether such additional duty could be treated as short payment from the date of clearance and how Section 4 valuation and transaction value applied. It also considered whether the earlier rulings in SKF India and International Auto, and the compensatory nature of excise interest, required reconsideration. The matter was not decided on merits and was referred to the Chief Justice of India for constitution of a Larger Bench.

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Issues: Whether interest under Section 11AB of the Central Excise Act, 1944 is leviable on differential duty paid later on account of price escalation under a contractual price variation clause, and whether the earlier decisions in SKF India and International Auto required reconsideration by a Larger Bench.

Analysis: The assessee cleared goods on the basis of the price prevailing at the time of removal and paid differential duty only after the buyer subsequently accepted an enhanced price under the contract. The Court examined the expression "duty ought to have been paid" in Section 11AB, the linkage between valuation and transaction value under Section 4, and the competing views expressed in earlier decisions on whether such later differential duty represented short payment on the date of clearance. It also considered the argument that the earlier view treating interest as compensatory required reconsideration in light of precedent on the nature of interest on tax and duty demands.

Outcome: The issue was not finally decided on merits in these appeals. The matter was directed to be placed before the Hon'ble Chief Justice of India for constituting a Larger Bench to examine the issue.

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