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 court held that Explanation (2) to sub-section 2(B) of section 11A treats payments made by assessee or ascertained by the officer as not exempt from interest under section 11AB; interest is leviable to make good revenue loss. Payment of the price differential after clearance constitutes short payment/short levy at removal, hence interest becomes payable.

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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.

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