2010 (1) TMI 151 - SC - Central Excise

Interest payable on price-differential payments after clearance under Explanation (2) to sub-section 2(B) of Section 11A and Section 11AB

SC upheld recovery of interest on differential duty where a show-cause notice was issued for the price difference between removal and eventual sale. The ... Levy of interest under Section 11AB for short payment of duty - application of Section 11A(2B) - payment of differential duty by supplementary invoices constitutes short-levy on date of removal - pre-2001 M.R.F. Limited precedent inapplicable after amendments to Section 11A and Section 11ABApplication of Section 11A(2B) - levy of interest under Section 11AB for short payment of duty - payment of differential duty by supplementary invoices constitutes short-levy on date of removal - Whether interest under Section 11AB is leviable where an assessee pays differential duty after retrospective upward revision of prices and issues supplementary invoices to customers. - HELD THAT: - The Court held that where prices are retrospectively revised upward and the assessee is able to demand the balance by issuing supplementary invoices, the value of the goods on the date of clearance was understated and the differential duty relates to the corrected value on the date of removal. Such payment of differential duty falls within the ambit of sub-section (2B) of Section 11A as a case of short-levy, albeit unintended, and Explanation (2) to Section 11A(2B) together with Section 11AB make clear that interest is chargeable on delayed payment of duty. The determinative reasoning, following Commissioner of Central Excise, Pune v. SKF India Limited, is that interest under Section 11AB is leviable to compensate for loss of revenue whenever duty has been short-paid on the date of removal, irrespective of absence of deceit or intention. [Paras 7, 8]Interest under Section 11AB is leviable where differential duty is paid later by way of supplementary invoices because that differential represents short-levy on the date of removal and attracts interest.Pre-2001 M.R.F. Limited precedent inapplicable after amendments to Section 11A and Section 11AB - Whether the Court's earlier decision in M.R.F. Limited applies to the present scheme of recovery after legislative amendments to Section 11A and Section 11AB. - HELD THAT: - The Court distinguished M.R.F. Limited as a decision rendered under the earlier scheme and in the context of Section 11B (refund) and pre-amendment price approvals. In view of substantial amendments made by Act 14 of 2001 and Act 32 of 2003 to Sections 11A and 11AB, the ratio in M.R.F. Limited does not apply to cases involving levy of interest for short-payment arising from retrospective upward price revisions. The Court therefore relied on SKF India Limited as the controlling precedent. [Paras 8]M.R.F. Limited is not applicable to disputes arising under the post-amendment scheme of Sections 11A and 11AB; SKF India Limited governs the present case.Final Conclusion: Civil appeal allowed; interest under Section 11AB is payable on differential duty paid after retrospective price revisions because such payment constitutes short-levy on the date of removal; the earlier M.R.F. decision is inapplicable post-amendments. Issues:Recovery of interest on differential duty under Section 11AB of the Central Excise Act, 1944.Analysis:The Department sought to recover interest on differential duty paid by the assessee, which was disputed. The assessee supplied auto parts to manufacturers of motor vehicles like Tata Motors, Mahindra and Mahindra, and Piaggio Vehicles Private Limited, with prices determined based on various factors. The Department issued a show-cause notice for interest on the price difference between the date of removal and the enhanced price at sale. The assessee argued that interest was not leviable under Section 11AB as prices in purchase orders were final, with no scope for retrospective price changes. The assessee relied on a previous judgment but the Supreme Court found no merit in the argument, citing the SKF India Limited case.The Supreme Court referenced the SKF India Limited case, explaining the provisions of Section 11A for non-levy or short-levy of duty. The Court highlighted that interest under Section 11AB is leviable on delayed payment of duty for any reason, unlike penalties for intentional defaults. The Court held that the payment of differential duty by the assessee fell under sub-section (2B) of Section 11A, attracting interest under Section 11AB. The Court disagreed with a High Court decision and emphasized that the situation constituted short payment of duty, leading to interest liability under Section 11AB.The Court discussed the changes in Section 11A and 11AB due to amendments in 2001 and 2003, emphasizing the accrual of price differential as a key factor. The judgment differentiated this case from a previous one concerning a claim for refund, stating that the current scenario involved the imposition of interest to compensate for revenue loss. The Court concluded that the judgment in the SKF India Limited case was applicable to the present case, allowing the civil appeal with no costs incurred.