Retrospective price enhancement triggers interest on differential service tax from the original tax due date, not final settlement date.

Interest is payable on differential duty and service tax where the price of coal or other services is retrospectively enhanced under the governing agreement, because the enhanced value relates back to the original date of removal or supply. On that settled principle, the tax liability arises from the earlier point in time and delayed payment attracts interest from that date, not from the later date of final price fixation. Notices issued under Section 87 of the Finance Act, 1994 on this basis were therefore treated as legally sustainable and not vulnerable to challenge for want of jurisdiction or arbitrariness.

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Issues: Whether notices demanding interest and recovery under Section 87 of the Finance Act, 1994 for differential duty and service tax arising from retrospective enhancement of the coal price were liable to be quashed.

Analysis: The liability to pay interest on differential duty or unpaid service tax had already been settled by the larger Bench of the Supreme Court. Where the price of goods or services is initially provisional and is later enhanced retrospectively under the governing agreement, the enhanced value relates back to the date of removal or supply. In such a situation, the corresponding differential duty becomes payable from the original point of time, and interest is attracted for the delayed discharge of that liability. The notices were founded on that settled legal position and therefore could not be assailed as being without jurisdiction or arbitrary.

Conclusion: The challenge to the notices failed. The demand for interest on the differential duty and service tax was held to be valid.

Ratio Decidendi: Where duty or service tax becomes payable on account of a retrospective enhancement of price, interest is payable from the original date on which the tax ought to have been paid, and not from the later date on which the final price is settled.

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