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REPORTABLE  

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NO. 2150 OF 2012  

M/S. STEEL AUTHORITY OF INDIA LTD.   ..APPELLANT(S)  

VERSUS  

COMMISSIONER OF CENTRAL EXCISE,  

RAIPUR          ..RESPONDENT(S)  

WITH  

CIVIL APPEAL NO.2562/2012  

CIVIL APPEAL NO.600/2013  

CIVIL APPEAL NO.1522-23/2013  

CIVIL APPEAL NO.599/2013  

JUDGMENT  

K.M. JOSEPH, J.  

1.  A Bench of two judges doubted the  

correctness of the judgment rendered by a Bench of  

two learned judges of this Court in CCE v. SKF India  

Ltd. 2009 (13) SCC 461 (hereinafter referred to as

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the “SKF Case”) as also the another judgment  

rendered by the same Bench in CCE v. International  

Auto Ltd. 2010 (2) SCC 672 and on the said basis to  

resolve the controversy the matter stood posted  

before us.  

2.  Very briefly put, the question which we are  

called upon to consider and resolve is as to whether  

interest is payable on the differential excise duty  

with retrospective effect that become payable on the  

basis of escalation clause under Section 11AB of the  

Central Excise Act, 1944 (hereinafter referred to  

as “the Act”).  

3.  In this batch of appeals, we will treat C.A.  

No.2150/2012 as the leading case.  We will refer to  

the said case as the SAIL Case.  In the said case  

originally, the appellant company which is  

manufacturer of various products including rail

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sold the same to the Indian Railways.  The products  

were cleared on sale from 1st January, 2005 to July  

2006.  The goods were cleared on the payment of  

excise duty on the payment of price which was fixed  

based on their circular dated 24.04.2005.  

Subsequently, the prices were enhanced by way of  

price circular dated 20.07.2006.  The revision came  

into effect with retrospective effect.  It is based  

on the same that SAIL deposited Rs.142 crores by way  

of excise duty.  This was done in August 2006.   

Thereupon, the officers of the department indulged  

in correspondence with SAIL seeking details  

regarding the clearances which were effected.  On  

the basis of material made available, SAIL was  

called upon to remit interest under Section 11AB of  

the Act.  SAIL filed its objections.  It is after  

considering the objections, the authority found  

that SAIL was liable to pay interest on a sum of

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Rs.142 crores calculated based on the date of  

removal of the goods during the period from January,  

2005 to July,2006.  Various objections raised by  

the appellants were dealt with and they were found  

merit less.  An appeal was carried before the  

Tribunal.  The Tribunal relied upon the judgment of  

this Court in SKF India Ltd. Case (supra) and  

accordingly dismissed the appeal.  Thereafter when  

the matter came up before this Court, a Bench of two  

learned judges after elaborately hearing the matter  

doubted the correctness of the decision in SKF case  

and also International Auto and hence the cases were  

referred to us in the decision reported in 2015 (16)  

SCC 107.   We heard learned counsel for the parties.  

4.  In SKF case also the assessee on the basis  

of revision of prices with retrospective effect paid  

the differential duty on being called upon to pay  

the said amount.  Thereafter the Revenue called

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upon the assesee to pay interest under Section 11AB  

of the Act.  A Bench of two learned judges after  

considering Sections 11A and 11AB disapproved the  

judgment of the Bombay High Court in CCE v. Rucha  

Engineering P.Ltd. holding inter alia as follows:  

“11. Section 11-A puts the cases of  

non-levy or short-levy, non-payment or  

short-payment or erroneous refund of duty  

in two categories. One in which the  

non-payment or short-payment, etc. of  

duty is for a reason other than deceit;  

the default is due to oversight or some  

mistake and it is not intentional. The  

second in which the non-payment or  

short-payment, etc. of duty is “by reason  

of fraud, collusion or any wilful  

misstatement or suppression of facts, or  

contravention of any of the provisions of  

the Act or of Rules made thereunder with  

intent to evade payment of duty”; that is  

to say, it is intentional, deliberate  

and/or by deceitful means. Naturally, the  

cases falling in the two groups lead to  

different consequences and are dealt with  

differently.  

12. Section 11-A, however allow the  

assessees-in-default in both kinds of  

cases to make amends, subject of course  

to certain terms and conditions. The  

cases where the non-payment or  

short-payment, etc. of duty is by reason  

of fraud, collusion, etc. are dealt with  

under sub-section (1-A) of Section 11-A

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and the cases where the non-payment or  

short-payment of duty is not intentional  

under sub-section (2-B).  

13. Sub-section (2-B) of Section 11-A  

provides that the assessee-in-default  

may, before the notice issued under  

sub-section (1) is served on him, make  

payment of the unpaid duty on the basis  

of his own ascertainment or as  

ascertained by a Central Excise Officer  

and inform the Central Excise Officer in  

writing about the payment made by him and  

in that event he would not be given the  

demand notice under sub-section (1). But  

Explanation 2 to the sub-section makes it  

expressly clear that such payment would  

not be exempt from interest chargeable  

under Section 11-AB, that is, for the  

period from the first date of the month  

succeeding the month in which the duty  

ought to have been paid till the date of  

payment of the duty.  

17. We are unable to subscribe to the  

view taken by the High Court in Rucha  

Engg. [ First Appeal No. 42 of 2007  

decided on 3-4-2007] It is to be noted  

that the assessee was able to demand from  

its customers the balance of the higher  

prices by virtue of retrospective  

revision of the prices. It, therefore,  

follows that at the time of sale the goods  

carried a higher value and those were  

cleared on short-payment of duty. The  

differential duty was paid only later  

when the assessee issued supplementary  

invoices to its customers demanding the  

balance amounts. Seen thus, it was  

clearly a case of short-payment of duty

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though indeed completely unintended and  

without any element of deceit, etc. The  

payment of differential duty thus clearly  

came under sub-section (2-B) of Section  

11-A and attracted levy of interest under  

Section 11-AB of the Act.”  

5.  The same Bench in International Auto case  

came to reiterate the same view in the latter  

decision.  The Bench also proceeded to distinguish  

the decision in MRF Ltd. v. Collector of Central  

Excise, Madras 1997 (5) SCC 104.  This is what the  

court has laid down in regard to MRF case in  

paragraph 9.   

“9. In our view, with the entire change  

in the scheme of recovery of duty under  

the Act, particularly after insertion of  

Act 14 of 2001 and Act 32 of 2003, the  

judgment of this Court in MRF  

Ltd. [(1997) 5 SCC 104 : (1997) 92 ELT  

309] would not apply. That judgment was  

on interpretation of Section 11-B of the  

Act, which concerns claim for refund of  

duty by the assessee. That judgment was  

in the context of the price list approved  

on 14-5-1983. In that case, the assessee  

had made a claim for refund of excise duty  

on the differential between the price on  

the date of removal and the reduced price

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at which tyres were sold. The price was  

approved by the Government. In that case,  

the assessee submitted that its price  

list was approved by the Government on  

14-5-1983, but subsequent thereto, on  

account of consumer resistance, the  

Government of India directed the assessee  

to roll back the prices to pre-14-5-1983  

level and on that account, price  

differential arose on the basis of which  

the assessee claimed refund of excise  

duty which stood rejected by this Court  

on the ground that once the assessee had  

cleared the goods on classification, the  

assessee became liable to payment of duty  

on the date of removal and subsequent  

reduction in the prices for whatever  

reason cannot be made a matter of concern  

to the Department insofar as the  

liability to pay excise duty was  

concerned.”  

6.  A Bench of two learned judges who have  

referred the cases felt that the MRF decision would  

continue to prevail, the value at the time of removal  

of the goods alone would govern the Situation which  

is a fundamental principle which continues to hold  

good till now.  The additional duty to be paid in  

future cannot be treated as attracting the concept  

of “short payment”. Though the differential duty may

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be payable but the interest is not payable.  The  

interest clock would start ticking from the date the  

differential duty is due, that is, the day on which  

the parties agree upon the escalated price and not  

before.  The expression “ought to have been paid”  

found in Section 11AB was not considered by this  

Court in SKF case, it was pointed out.  The Court  

felt that SKF Case runs contrary to the Constitution  

Bench decision in JK Synthetics and interest cannot  

be demanded by way of damages or compensation.  

7.  In our view, the following questions will  

fall to be decided by us:  

1) Whether the decision in SKF case and also in  

International Auto lay down the correct law  

having regard to the decision of this Court in  

MRF case which was in fact rendered by a Bench  

of three Judges.

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2) The effect of the judgment in JK Synthetics  

v. State of Rajathan as also the other  

judgments cited before us in regard to demand  

for interest under fiscal statutes.  

3) Whether the determination of duty under  

Section 11A(2) is necessary to sustain the  

demand for interest under Section 11AB of the  

Act.  

4) The impact of Rule 7 of the Central Excise  

rules which contemplates provisional  

assessment.  

5) Whether payment of differential duty can be  

treated as a case of payment of duty under the  

head “short paid”.  

6) The effect of decisions under the Income Tax  

Act relating to accrual of income and the  

impact of accrual of income under the Income

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Tax Act on the liability under Section 11AB of  

the Act having regard to the statutory scheme  

under the Act and the Rules.  

8.  Before we proceed to deal with the matter in  

greater detail, we must at once notice the following  

finding in the reference order passed by this Court  

in Steel Authority of India vs. CCE (supra):  

“21. In the first instance, he pointed out  that in these appeals, there can be two  

distinct types of transactions:  

(a) where the price of the goods is  

“fixed” at the time and place of removal,  

and as a result of subsequent negotiations  

(often protracted) the price is  

retrospectively revised by the buyer;  

(b) where the price at the time and place  

of removal is “not fixed” (price subject to  

escalation clause), and the final price is  

agreed between the seller and buyer  

subsequently.  

According to him in the cases falling in the  

first category, even the differential duty  

is not payable.  However, all these  

appeals fall in the second category and,  

therefore, we are not indulging in any  

discussion pertaining to the first

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category.  We may also point out that in  

all these appeals, the period in dispute  

(i.e. the period in which supplementary  

invoices on account of price revision were  

raised) is post the introduction of the  

“transaction value” definition in Section  

4 of the 1944 Act but before 2010.  

22. It is a common case of the parties and  

even the learned counsel for the assessee  

admits that in non-fixed price scenario,  

differential duty is liable to be paid on  

subsequent revision of price which the  

assessee had already paid the differential  

duty at or about the time when revised price  

was agreed upon by the seller and the buyer.   

The question, however, is as to whether  

interest thereon is payable from the date  

of clearance of goods when duty was paid on  

the basis of invoice, till the date when  

differential duty was paid.”   

Therefore, we proceed further in this matter on the  

basis that the price at the time of removal is not  

fixed. That is, the price is subject to revision  

under the escalation clause.  There is also  

admittedly no dispute raised either before the Bench  

which referred the matter or before us by the learned  

counsel for the appellant that differential duty is

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indeed payable on the subsequently revised price  

which is to operate with retrospective effect.  

9.  At this juncture we think it apposite to  

refer to the facts in MRF case (MRF Limited v.  

Collector of Central Excise, Madras).  MRF Case was  

decided on 12.3.1997 and it is reported in 1997 (5)  

SCC 104.  The appeal was filed in this Court against  

the order passed by the Tribunal dated 24.9.1986.   

By the impugned order the assessee’s claim for  

refund of excess duty paid on differential price on  

the date of removal and the reduced price was  

rejected.  The case set up by the assessee was that  

the price list was approved on 14.5.1983.   

Subsequently, there was resistance by the  

consumers.  The Ministry of Commerce, Government of  

India, thereupon directed the manufacturer-  

assessee pursuant to a decision taken in a meeting  

of Manufacturers to bring down the prices to the pre

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14.5.1983 level.  On the basis of the same a  

difference in the prices arose.  This led to a claim  

for refund.  The Tribunal was of the view that the  

prices at the time of removal alone mattered.  The  

subsequent reduction in the prices for whatever  

reason was totally irrelevant.  Thereafter, the  

court proceeded to hold as follows:  

“2. We have heard the learned counsel for  

the assessee.  Once the assessee has  

cleared the goods on the classification  

and price indicated by him at the time of  

the removal of the goods from the factory  

gate, the assessee becomes liable to  

payment of duty on that date and time and  

subsequent reduction in prices for  

whatever reason cannot be a matter of  

concern to the Central Excise Department  

insofar as the liability to payment of  

excise duty was concerned. This is the  

view which was taken by the Tribunal in  

the case of Indo Hacks Ltd. V. CCE (1986)  

25 ELT 69 (Trib)and it seems to us that  

the Tribunal’s view that the duty is  

chargeable at the rate and price when the  

commodity is cleared at the factory gate  

and not on the price reduced at a  

subsequent date is unexceptionable.   

Besides as rightly observed by the  

Tribunal the subsequent fluctuation in  

the prices of the commodity can have no  

relevance whatsoever so far as the

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liability to pay excise duty is  

concerned.  That being so, even if we  

assume that the roll back in the price of  

tyres manufactured by the appellant  

Company was occasioned on account of the  

directive issued by the Central  

Government, that by itself, without  

anything more, would not entitle the  

appellant to claim a refund on the price  

differential unless it is shown that  

there was some agreement in this behalf  

with the Government and the latter had  

agreed to refund the excise duty to the  

extent of the reduced price.  That being  

so, we see no merit in this appeal brought  

by the assessee and dismiss the same with  

no order as to costs.”  

10.  We may at once notice a feature which stands  

out.  In the MRF case at the time when the goods were  

removed, the prices were fixed and there was  

absolutely no occasion for the assessee or the  

department to even contemplate a price revision  

either upwards or downwards.  The price was not  

provisional. Therefore, we would think that out of  

the two situations which are noted in paragraph 21  

of the Reference Order, the first situation would  

be comparable to the facts of the decision obtaining

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in MRF case.  In case where the price is fixed there  

would be no occasion for the assessee to seek refund  

but here in the case before us, admittedly the case  

does not fall under the first category even  

according to the appellants.  It could be said that  

the price was subject to variation based on the  

operation of the price escalation clause.  Now the  

time is ripe for us to consider the statutory  

framework under the Act and the Rules made under the  

Act.  Section 2(h) of the Act defines sale and  

purchase as follows:  

2(h) “sale” and “purchase”, with their  

grammatical variations and cognate  

expressions, mean any transfer of the  

possession of goods by one person to  

another in the ordinary course of trade or  

business for cash or deferred payment or  

other valuable consideration.”  

11.  Interestingly, unlike under the definition  

of Sale of Goods Act, 1930, “sale” under the Act  

takes place on transfer of possession. However we

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need not say anything further as it is not necessary  

for the cases at hand.  Section 3 is the charging  

section. With effect from 1.7.2000 under the Finance  

Act of 2000, Section 4 of the Act which is crucial  

for our case reads as follows:  

“4. Valuation of excisable goods for  

purpose of charging of duty of excise –   

(1) Where under this Act, the duty of  

excise is chargeable on any excisable  

goods with reference to their value,  

then, on each removal of the goods, such  

value shall –  

(a) In a case where the goods are  

sold by the assessee, for delivery at  

the time and place of the removal, the  

assessee and the buyer of the goods are  

not related and the price is the sole  

consideration for the sale, be the  

tansaction value;  

(b) In any other case, including the  

case where the goods are not sold, be the  

value determined in such manner as may  

be prescribed  

(2) The provisions of this section shall  

not apply in respect of any excisable  

goods for which a tariff value has been  

fixed under sub-section (2) of section 3.  

 (3) For the purpose of this section,-

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(a) “assessee” means the person who  

is liable to pay the duty of excise under  

this Act and includes his agent;  

(b) xxx  xxx  xxx  

(c) xxx  xxx  xxx  

(d) “transaction value” means the  

price actually paid or payable for the  

goods, when sold, and includes in  

addition to the amount charged as price,  

any amount that the buyer is liable to  

pay to, or on behalf of, the assessee,  

by reason of, or in connection with the  

sale, whether payable at the time of the  

sale or at any other time, including,  

but not limited to, any amount charged  

for, or to make provision for,  

advertising or publicity, marketing and  

selling organization expenses,  

storage, outward handling, servicing,  

warranty, commission or any other  

matter; but does not include the amount  

of duty of excise, sales tax and other  

taxes, if any, actually paid or actually  

payable on such goods.”  

12.  Section 11A was inserted in the year 1980 and  

it underwent changes.  Section 11A of the Act as it  

stood at the relevant time read as follows:  

“11A. Recovery of duties not levied or  

not paid or short-levied or shot-paid or  

erroneously refunded – (1) When any duty  

of excise has not been levied or paid or

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has been short-levied or short-paid or  

[erroneously refunded, whether or not  

such non-levy or non-payment, short-levy  

or short payment or erroneous refund, as  

the case may be, was on the basis of any  

approval acceptance or assessment  

relating to the rate of duty on or  

valuation of excisable goods under any  

other provisions of this Act or the rules  

made thereunder], a Central Excise  

Officer may, within [one year] from the  

relevant date, serve notice on the person  

chargeable with the duty which has not  

been levied or paid or which has been  

short-levied or short-paid or to whom the  

refund has erroneously been made,  

requiring him to show cause why he should  

not pay the amount specified in the  

notice:   

  Provided that where any duty of  

excise has not been levied or paid or has  

been short-levied or shot-paid or  

erroneously refunded by reason of fraud,  

collusion or any wilful mis-statement or  

suppression of facts, or contravention of  

any of the provisions of this Act or of  

the rules made thereunder with intent to  

evade payment of duty by such person or  

his agent, the provisions of this  

sub-section shall have effect [as if,  

{***]] for the words [one year], the words  

“five years” were substituted.  

 [Provided further that where the amount  

of duty which has not been levied or paid  

or has been short-levied or short-paid or  

erroneously refunded is one crore rupees  

or less a notice under this sub-section

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shall be served by the Commissioner of  

Central Excise or with his prior approval  

by any officer subordinate to him:  

  Provided also that where the amount  

of duty which has not been levied or paid  

or has been short-levied or short-paid or  

erroneously refunded is more than one  

crore rupees, no notice under this  

sub-section shall be served without the  

prior approval of the Chief Commissioner  

of Central Excise.]  

 (2) The [Central Excise Officer] shall,  

after considering the representation, if  

any, made by the person on whom notice is  

served under sub-section (1), determine  

the amount of duty of excise due from such  

person (not being in excess of the amount  

specified in the notice) and thereupon  

such person shall pay the amount so  

determined.  

 (3) For the purposes of this section,-  

 (i) “refund”  includes  rebate  of  

duty of excise on excisable goods  

exported out of India or on excisable  

materials used in the  manufacture of  

goods which are exported out of India;  

(ii) “relevant date” means,-  

[(a) in the case of excisable goods on  

which duty of excise has not been  

levied or paid or has been  

short-levied or short-paid -    

(A) where under the rules made  under this Act a periodical  

return, showing

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particulars of the duty  

paid on the excisable goods  

removed during the period  

to which the said return  

relates, is to be filed by  

a manufacturer or a  

producer or a licensee of a  

warehouse, as the   case  

may be, the date on which  

such return is so filed;  

(B) where no periodical return  as aforesaid is filed, the  

last date on which such  

return is to be filed under  

the said rules;  

(C) in any other case, the date  on which the duty is to be  

paid under this Act or the  

rules made thereunder;]”   

13.  Section 11AB is undoubtedly the most crucial  

Section as far as this case is concerned.  Section  

11AB read as follows:  

“11AB. Interest on delayed payment of  

duty,– (1) Where any duty of excise has  

not been levied or paid or has been  

short-levied or shot-paid or erroneously  

refunded by reason of fraud, collusion or  

any wilful mis-statement or suppression  

of facts, or contravention of any of the  

provisions of this Act or the rules made  

thereunder with intent to evade payment

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of duty, the person liable to pay duty as  

determined under sub-section (2) of  

section 11A shall, in addition to the  

duty, be liable to pay interest [at such  

rate not below eighteen per cent, and not  

exceeding thirty-six per cent, per annum,  

as is for the time being fixed by the  

Central Government, by notification in  

the Official Gazette], from the first day  

of the month succeeding the month in which  

the duty ought to have been paid under  

this Act or the rules made thereunder or  

from the date of such erroneous refund,  

as the case may be, but for the provisions  

contained in sub-section (2) of section  

11A, till the date of payment of such  

duty.  

(2) For the removal of doubts, it is  

hereby declared that the provisions of  

sub-section (1) shall not apply to cases  

where the duty became payable before the  

date on which the Finance (No.2) Bill,  

1996 receives the assent of the  

President.”   

Explanation 1 and 2 are not extracted.  

14.  It is also now relevant to notice certain  

rules under the Central Excise Rules, 2002.  Rules  

4,5,6,7 and 8 read as under:  

“RULE 4. Duty payable on removal.-  

(1) Every person who produces or  

manufactures any excisable goods, or who  

stores such goods in a warehouse, shall  

pay the duty leviable on such goods in the

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manner provided in rule 8 or under any  

other law, and no excisable goods, on  

which any duty is payable, shall be  

removed without payment of duty from any  

place, where they are produced or  

manufactured, or from a warehouse, unless  

otherwise provided :   

Proviso and Explanation omitted.  

(1A)  XXX  XXX  XXX  

(2) Notwithstanding anything contained  

in sub-rule (1), where molasses are  

produced in a khandsari sugar factory,  

the person who procures such molasses,  

whether directly from such factory or  

otherwise, for use in the manufacture of  

any commodity, whether or not excisable,  

shall pay the duty leviable on such  

molasses, in the same manner as if such  

molasses have been produced by the  

procurer.    

(3) Omitted  

(4)  XXX  XXX  XXX  

RULE 5. Date of determination of duty and  

tariff valuation. —   

(1) The rate of duty or tariff value  

applicable to any excisable goods, other  

than khandsari molasses, shall be the  

rate or value in force on the date when  

such goods are removed from a factory or  

a warehouse, as the case may be.  

(2) The rate of duty in the case of  

khandsari molasses, shall be the rate in  

force on the date of receipt of such

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molasses in the factory of the procurer  

of such molasses.   

Explanation. - If any excisable goods are  

used within the factory, the date of  

removal of such goods‘ shall mean the date  

on which the goods are issued for such  

use.  

(3) omitted.  

RULE 6. Assessment of duty.- The assessee  

shall himself assess the duty payable on  

any excisable goods:  

Provided that in case of cigarettes, the  

Superintendent or Inspector of Central  

Excise shall assess the duty payable  

before removal by the assessee.  

Provisional assessment.   

RULE 7. Provisional assessment.-  

(1) Where the assessee is unable to  

determine the value of excisable goods or  

determine the rate of duty applicable  

thereto, he may request the Assistant  

Commissioner of Central Excise or the  

Deputy Commissioner of Central Excise, as  

the case may be, in writing giving reasons  

for payment of duty on provisional basis  

and the Assistant Commissioner of Central  

Excise or the Deputy Commissioner of  

Central Excise, as the case may be, may  

order allowing payment of duty on  

provisional basis at such rate or on such  

value as may be specified by him.  

(2) The payment of duty on provisional  

basis may be allowed, if the assessee  

executes a bond in the form prescribed by

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notification by the Board with such  

surety or security in such amount as the  

Assistant Commissioner of Central Excise  

or the Deputy Commissioner of Central  

Excise, as the case may be, deem fit,  

binding the assessee for payment of  

difference between the amount of duty as  

may be finally assessed and the amount of  

duty provisionally assessed.  

(3) The Assistant Commissioner of Central  

Excise or the Deputy  Commissioner of  

Central Excise, as the case may be, shall  

pass order for final assessment, as soon  

as may be, after the relevant  

information, as may be required for  

finalizing the assessment, is available,  

but within a period not exceeding six  

months from the date of the communication  

of the order issued under sub-rule (1):  

Provided that the period specified in  

this sub-rule may, on sufficient cause  

being shown and the reasons to be recorded  

in writing, be extended by the  

Commissioner of Central Excise for a  

further period not exceeding six months  

and by the Chief Commissioner of Central  

Excise or Chief Commissioner of Central  

Excise for such further period as he may  

deem fit.  

(4) The assessee shall be liable to pay  

interest on any amount payable to Central  

Government, consequent to order for final  

assessment under sub-rule(3), at the rate  

specified by the Central Government by  

notification under section 11AA or  

Section 11AB of the Act from the first day  

of the month succeeding the month for

26  

which such amount is determined, till the  

date of payment thereof.   

(5) Where the assessee is entitled to a  

refund consequent to order for final  

assessment under sub-rule (3), subject to  

sub-rule (6), there shall be paid an  

interest on such refund as provided under  

section 11BB of the Act from the first day  

of the month succeeding the month for  

which such refund is determined, till the  

date of refund.  

(6). Any amount of refund determined  

under sub-rule (3) shall be credited to  

the Fund:   

Provided that the amount of refund,  

instead of being credited to the Fund, be  

paid to the applicant, if such amount is  

relatable to –   

(a) the duty of excise paid by the  

manufacturer, if he had not passed on the  

incidence of such duty to any other  

person; or   

(b) the duty of excise borne by the buyer,  

if he had not passed on the incidence of  

such duty to any other person.  

RULE 8. Manner of payment .-  

(1) The duty on the goods removed from the  

factory or the warehouse during a month  

shall be paid by the 5th day of the  

following month:  

Provided that in case of goods removed  

during the month of March, the duty shall  

be paid by the 31st day of March :  

27  

Provided further that where an assessee  

is availing of the exemption under a  

notification based on the value of  

clearances in a financial year, the duty  

on goods cleared during a calender month  

shall be paid by the 15th day of the  

following month except in case of goods  

removed during the month of March for  

which the duty shall be paid by the 31st  

day of March.  

Explanation – Not extracted  

(1A)  ***  ***  ***  

(2) The duty of excise shall be deemed to  

have been paid for the purposes of these  

rules on the excisable goods removed in  

the manner provided under sub-rule (1)  

and the credit of such duty allowed, as  

provided by or under any rule.  

(3)If the assessee fails to pay the amount  

of duty by the due date, he shall be liable  

to pay the outstanding amount along with  

an interest at the rate of two per cent  

per month or rupees one thousand per day,  

whichever is higher, for the period  

starting with the first day after due date  

till the date of actual payment of the  

outstanding amount:  

Provided that the total amount of  

interest payable in terms of this  

sub-rule shall not exceed the amount of  

duty which has not been paid by the due  

date:  

Provided further that till such time the  

amount of duty outstanding and the  

interest payable thereon are not paid, it

28  

shall be deemed that the goods in  

que3stion in respect of which the duty and  

interest are outstanding, have been  

charged without payment of duty, and  

where such duty and interest are not paid  

within a period of one month from the due  

date, the consequences and the penalties  

as provided in these rules shall follow.  

Illustrations – Not extracted  

(4) The provisions of Section 11 of the  

Act shall be applicable for recovery of  

the duty as assessed under rule 6 and the  

interest under sub-rule (3) in the same  

manner as they are applicable for  

recovery of any duty or other sums payable  

to the Central Government.”    

15.  Excise duty is a duty on manufacture or  

production of goods.  It is, however, collected at  

the point of removal of goods. When the duty of  

excise is chargeable with reference to the value of  

goods, Section 4 provides that on each removal of  

the goods, the value will be determined either under  

clause(a) or clause(b).  We are in these cases  

governed by clause(a). Section (4) yields the  

following elements: -

29  

(i) when the goods are sold;  

(ii) for delivery;  

(iii) at the time and place of removal;  

(iv) the assessee (appellants in these cases  

are the assesses) and the buyer not being  

related;  

(v) price is the sole consideration for the  

sale, then the transaction value will be  

the value for the determination of excise  

duty.    

The price may be what is actually paid or what  

is payable for the goods when sold.  

Apart from what is shown as the price the  

transaction value would include:  

(i)  Any amount the buyer is liable to pay  

to the assessee by reason of or in  

connection with the sale whether at the  

time of the sale or any other time.

30  

(ii)  Any amount payable on behalf of the  

assessee by reason of or in connection  

with the sale whether at the time of  

sale or any other time.  

(iii) The aforesaid amounts encompass  

certain amounts which are specifically  

enumerated namely, advertising,  

publicity, marketing and selling,  

organizational expenses, storage,  

outward handling serving, warranty,  

commission or any other matter.  

16.  Thus, the intent is to determine the value  

by not only including the actual price paid or  

payable but all amounts which are separately  

enumerated and found mention as hereinbefore.  

17.  Now it is time to look at the effect of the  

rules relevant for the purpose of this case.  Rule  

4 falls under the heading ‘duty payable on removal’.

31  

It is contemplated that duty is to be paid on the  

goods  in the manner provided under Rule 8 or under  

any law.  No excisable good on which duty is payable  

can be removed without payment of excise duty unless  

otherwise provided.  This would take us to Rule 8  

as there is no case that any other law is applicable.   

Rule 8 under the heading ‘manner of payment’  

declares that duty on the goods removed from the  

factory etc. during a month shall be paid by the  5th  

day of the following month.  Removal however in the  

month of March will entail liability to pay by 31st  

day of March.  Sub-rule 3 of Rule 8 provides for  

liability with the assessee who fails to pay the  

amount by the due date.  Sub rule 4 refers to  

liability to pay interest.  It is amply clear that  

the expression ‘due date’ would be 5th day of the  

month following the month during which the goods are  

removed except with regard to the goods removed

32  

during the month of March in which case the due date  

would be 31st day of March.  

18.  The scheme of the rules further is that  

assessment is to be done by the assessee itself by  

way of self-assessment and the duty paid by the due  

date (see Rule 6). What is to happen when the  

asssessee is confronted with a situation when it is  

unable to determine the value of the goods or find  

the rate of duty.  Rule 7 provides the solution.   

The assessee can thereunder apply giving reasons and  

seeking permission to make a provisional  

assessment.  The officer may, grant such  

permission. Thereupon, duty is payable on a  

provisional basis.  The value or the rate would be  

indicated by the officer in the order permitting  

such provisional assessment.  This is however made  

subject to the assessee executing a bond binding the  

assessee to pay the difference between the duty as

33  

payable under the final assessment and the  

provisional assessment.  The final assessment is to  

be made within six months from the date of  

communication of the order permitting provisional  

assessment under Rule 7(1). The period can be  

extended by the Commissioner for six months and by  

the chief Commissioner for which there is no time  

limit.  

Sub-rule (4) of Rule 7 is very crucial. It  

provides as follows:-  

1) The assessee shall be liable to pay interest  

2) On any amount payable based on a final  

assessment under Rule 7(3)  

3) At the rate fixed under Section 11A or Section  

11B of the Act  

4) From the first date of the month succeeding the  

month for which the amount is determined till  

the date of payment thereof.

34  

Rule 7(5) contemplates interest on refund based  

on the final assessment.  

19.  Now it is important that we delve upon the  

case of SAIL before the Commissioner, its stand in  

the appeal and finally before this Court.  As  

already noticed SAIL sold and cleared rails to  

Indian Railways based on the price circular dated  

24/04/2005.  The transaction in question related to  

the period 01/01/2005 to July, 2006.  Later, based  

upon a revised price circular dated 20/07/2006, the  

prices were revised and it took effect from  

01/01/2005. The excise duty undoubtedly in a sum of  

Rs. 142.78 crores came to be paid by SAIL in August  

2006.  However, upon receipt of notice under  

Section 11AB of the Act calling upon it to pay more  

than Rs. 15 crores as interest under Section 11AB.  

SAIL raised various objections.  It, in fact,  

contended that this is not a case of short payment

35  

of duty as the price at the time of actual removal  

of goods formed the basis for which duty was duly  

paid.  It was not liable to pay the differential  

duty.  Rebutting the case of the department, it was  

contended that it was not liable to resort to  

provisional assessment under Rule 7.  The  

Commissioner however, took the view that the price  

which were shown originally by SAIL was itself  

provisional.  It was a case where the assessee  

should have invoked Rule 7 and proceeded to make the  

provisional assessment.  In appeal before the  

Tribunal, the assessee-SAIL continued with its  

contention that it actually was not liable to pay  

the differential duty.  The Tribunal as already  

noticed following the judgment of this Court in SKF  

case (supra) which came to be delivered by that time  

dismissed the appeal of the assessee. Before the  

Bench which referred the matters to this Bench

36  

however, the appellants have made it clear that they  

are indeed liable to pay the differential duty.  We  

have noticed that stand which has been expressly  

recorded by this Court in paragraphs 21-22 of the  

reference order.  

20.  Much reliance has been placed by the  

appellants on the decision of this Court in J K  

Synthetics. The first decision is the decision of  

this Court in Associated Cement. The said decision  

was rendered by a Bench of three learned judges.   

There was a cleavage of opinion.  Justice E.S.  

Venkataramiah, as His Lordship then was wrote the  

majority judgment.  Justice P.N. Bhagwati as His  

Lordship then was dissented.  The case arose under  

the Rajasthan Sales Tax Act.  The two relevant  

provisions to be noticed under the statute  

considered by the said Bench are Sections 7 and  

Section 11B of the Act.  They read as follows:

37  

"7. Submission of returns.-(1) Every  registered dealer and such other dealer,  

as may be required to do so by the  

assessing authority by notice served in  

the prescribed manner, shall furnish  

prescribed returns, for the prescribed  

periods, in the prescribed forms, in the  

prescribed manner and within the  

prescribed time to the assessing  

authority:   

Provided that the assessing authority may  

extend the date for the submission of such  

returns by any dealer or class of dealers  

by a period not exceeding fifteen days in  

the aggregate.   

(2) Every such return shall be  

accompanied by a Treasury receipt or  

receipt of any bank authorised to receive  

money on behalf of the State Government,  

showing the deposit of the full amount of  

tax due on the basis of return in the State  

Government Treasury or bank concerned.  

(2A) Notwithstanding anything contained  

in sub-section (2), the State Government  

may by notification in the official  

Gazette require any dealer or class of  

dealers specified therein, to pay tax at  

intervals shorter than those prescribed  

under sub-section (1). In such cases, the  

proportionate tax on the basis of the last  

return shall be deposited at the  

intervals specified in the said  

notification in advance of the return.  

The difference, if any, of the tax payable  

according to the return and the advance  

tax paid shall be deposited with the  

return and the return shall be  

accompanied by the treasury receipt, or  

receipts, of any Bank authorised to

38  

receive money on behalf of the State  

Government, for the full amount of tax due  

shown in the return   

(3) If any dealer discovers any omission,  

error, or wrong statement in any returns  

furnished by him under sub-section (1),  

he may furnish a revised return in the  

prescribed manner before the time  

prescribed for the submission of the next  

return but not later.   

(4) Every deposit of tax made under  

sub-section (2) shall be deemed to be  

provisional subject to necessary  

adjustments in pursuance of the final  

assessment of tax made for any year under  

section 10."  

“11-B. Interest on failure to pay tax, fee  

or penalty – (a) If the amount of any tax  

payable under sub-sections (2) and (2-A)  

of Section 7 is not paid within the period  

allowed, or  

(b)If the amount specified in any notice  

of demand, whether for tax, fee or  

penalty, is not paid within the period  

specified in such notice, or in the  

absence of such specification, within 30  

days from the date of service of such  

notice, the dealer shall be liable to pay  

simple interest on such amount at one per  

cent per month from the day commencing  

after the end of the said period for a  

period of three months and at one and a  

half per cent per month thereafter during  

the time he continues to make default in  

the payments;  

39  

 Provided that, where, as a result, of  

any order under this Act, the amount, on  

which interest was payable under this  

section, has been reduced, the interest  

shall be reduced accordingly and the  

excess interest paid, if any, shall be  

refunded;  

 Provided further that no interest  

shall be payable under this section on  

such amount and for such period in respect  

of which interest is paid under the  

provisions of Sections 11 and 14.”  

21.  In Associated Cement Ltd., the majority was  

dealing with the case falling under Section 11B(a).   

After analyzing the various provisions the majority  

took the view that not only the assessee should have  

paid the tax on the basis of the return but the return  

must be a return which it ought to have filed in law  

and on facts.  Justice Bhagwati who dissented  

however, took exception to this reasoning and found  

that such an interpretation would raise conflicts  

between the provisions contained in clause (a) and  

clause(b) of Rule 11B.  Justice Bhagwati in his

40  

dissent pointed out the anomaly behind the reasoning  

of the majority.  In particular, we may point out  

that it was noticed by the learned Judge that if the  

reasoning of the majority is accepted, different  

rates of interest would apply at different stages.   

Furthermore, it was reasoned that an assessee cannot  

do beyond paying the tax according to the return.   

He cannot possibly divine what the assessing officer  

will finally assess him to.  In fact, in the later  

judgment in JK Synthetics, the Constitution Bench  

subscribed to the view expressed in the dissenting  

judgment in ACC Ltd. case which it accepted as laying  

down the correct position in law and overruled the  

majority in Associated Cement Co. case.  In the JK  

Synthetics judgment also the case arose under the  

Rajasthan Sales Tax Act though it arose under  

Section 7(2)(A).  The case in Associated Cement  

case fell under under Section 7(2) of the Act.  What

41  

is relevant for our purpose  are two aspects.  One  

is we must bear in mind the actual provisions of the  

Rajasthan tax law which fell for consideration that  

we have already set forth.  We must advert to the  

law which has been laid down in JK Synthetics.   

Following is the discussion:  

“16. It is well-known that when a statute  

levies a tax it does so by inserting a  

charging section by which a liability is  

created or fixed and then proceeds to  

provide the machinery to make the  

liability effective. It, therefore,  

provides the machinery for the assessment  

of the liability already fixed by the  

charging section, and then provides the  

mode for the recovery and collection of  

tax, including penal provisions meant to  

deal with defaulters. Provision is also  

made for charging interest on delayed  

payments, etc. Ordinarily the charging  

section which fixes the liability is  

strictly construed but that rule of  

strict construction is not extended to  

the machinery provisions which are  

construed like any other statute. The  

machinery provisions must, no doubt, be  

so construed as would effectuate the  

object and purpose of the statute and not  

defeat the same.  

(See Whitney v. IRC  [1926 AC 37 : 42 TLR  

58] , CIT v. Mahaliram Ramjidas [(1940)  

8 ITR 442 : AIR 1940 PC 124 : 67 IA  

239], India United Mills

42  

Ltd. v. Commissioner of Excess Profits  

Tax, Bombay [(1955) 1 SCR 810 : AIR 1955  

SC 79 : (1955) 27 ITR 20] and Gursahai  

Saigal v. CIT, Punjab [(1963) 3 SCR 893  

: AIR 1963 SC 1062 : (1963) 48 ITR 1] ).  

But it must also be realised that  

provision by which the authority is  

empowered to levy and collect interest,  

even if construed as forming part of the  

machinery provisions, is substantive law  

for the simple reason that in the absence  

of contract or usage interest can be  

levied under law and it cannot be  

recovered by way of damages for wrongful  

detention of the amount. (See Bengal  

Nagpur Railway Co. Ltd. v. Ruttanji  

Ramji  [AIR 1938 PC 67 : 65 IA 66 : 67 CLJ  

153] and Union of India v. A.L. Rallia  

Ram [(1964) 3 SCR 164, 185-90 : AIR 1963  

SC 1685] ). Our attention was, however,  

drawn by Mr Sen to two cases. Even in those  

cases, CIT v. M. Chandra Sekhar [(1985)  

1 SCC 283 : 1985 SCC (Tax) 85 : (1985) 151  

ITR 433] and Central Provinces Manganese  

Ore Co. Ltd. v. CIT [(1986) 3 SCC 461 :  

1986 SCC (Tax) 601 : (1986) 160 ITR 961]  

, all that the Court pointed out was that  

provision for charging interest was, it  

seems, introduced in order to compensate  

for the loss occasioned to the Revenue due  

to delay. But then interest was charged  

on the strength of a statutory provision,  

may be its objective was to compensate the  

Revenue for delay in payment of tax. But  

regardless of the reason which impelled  

the Legislature to provide for charging  

interest, the Court must give that  

meaning to it as is conveyed by the  

language used and the purpose to be  

achieved. Therefore, any provision made  

in a statute for charging or levying

43  

interest on delayed payment of tax must  

be construed as a substantive law and not  

adjectival law. So construed and applying  

the normal rule of interpretation of  

statutes, we find, as pointed out by us  

earlier and by Bhagwati, J. in  

the Associated Cement Co. case [(1981) 4  

SCC 578 : 1982 SCC (Tax) 3 : (1981) 48 STC  

466] , that if the Revenue's contention  

is accepted it leads to conflicts and  

creates certain anomalies which could  

never have been intended by the  

Legislature.  

17. Let us look at the question from a  

slightly different angle. Section 7(1)  

enjoins on every dealer that he shall  

furnish prescribed returns for the  

prescribed period within the prescribed  

time to the assessing authority. By the  

proviso the time can be extended by not  

more than 15 days. The requirement of  

Section 7(1) is undoubtedly a statutory  

requirement. The prescribed return must  

be accompanied by a receipt evidencing  

the deposit of full amount of ‘tax due’  

in the State Government on the basis of  

the return. That is the requirement of  

Section 7(2). Section 7(2-A), no doubt,  

permits payment of tax at shorter  

intervals but the ultimate requirement is  

deposit of the full amount of ‘tax due’  

shown in the return. When Section 11-B(a)  

uses the expression “tax payable under  

sub-sections (2) and (2-A) of Section 7”,  

that must be understood in the context of  

the aforesaid expressions employed in the  

two sub-sections. Therefore, the  

expression ‘tax payable’ under the said  

two sub-sections is the full amount of tax  

due and ‘tax due’ is that amount which

44  

becomes due ex hypothesi on the turnover  

and taxable turnover “shown in or based  

on the return”. The word ‘payable’ is a  

descriptive word, which ordinarily means  

“that which must be paid or is due, or may  

be paid” but its correct meaning can only  

be determined if the context in which it  

is used is kept in view. The word has been  

frequently understood to mean that which  

may, can or should be paid and is held  

equivalent to ‘due’. Therefore, the  

conjoint reading of Sections 7(1), (2)  

and (2-A) and 11-B of the Act leaves no  

room for doubt that the expression ‘tax  

payable’ in Section 11-B can only mean the  

full amount of tax which becomes due under  

sub-sections (2) and (2-A) of the Act when  

assessed on the basis of the information  

regarding turnover and taxable turnover  

furnished or shown in the return.  

Therefore, so long as the assessee pays  

the tax which according to him is due on  

the basis of information supplied in the  

return filed by him, there would be no  

default on his part to meet his statutory  

obligation under Section 7 of the Act and,  

therefore, it would be difficult to hold  

that the ‘tax payable’ by him ‘is not  

paid’ to visit him with the liability to  

pay interest under clause (a) of Section  

11-B. It would be a different matter if  

the return is not approved by the  

authority but that is not the case here.  

It is difficult on the plain language of  

the section to hold that the law envisages  

the assessee to predicate the final  

assessment and expect him to pay the tax  

on that basis to avoid the liability to  

pay interest. That would be asking him to  

do the near impossible.”  

45  

22.  In short, therefore, the principle may be  

taken to be established that while levy of interest  

is a part of the adjective law, yet to levy interest  

there must be substantive provision. Demand for  

interest can be made only if the legislature has  

specifically intended collection of interest.  We  

must look at the statutory provisions.    

23.  In Purolator India Limited Vs. Commissioner  

of Central Excise 2015 (10) SCC 715, a Bench of two  

learned Judges was called upon to decide the  

question as to whether cash discount and trade  

discount are to be deducted for arriving at the  

transaction value.  The Bench went on to consider  

section 4 of the Act prior to its amendment in 1973,  

after the amendment in 1973 and also still further  

after the amendment in the year 2000.  After  

elaborate consideration of the matter, the Bench

46  

speaking through Justice Rohinton Fali Nariman held  

as follows:  

“14. It can be seen that the common thread  

running through Section 4, whether it is  

prior to 1973, after the amendment in  

1973, or after the amendment of 2000, is  

that excisable goods have to have a  

determination of “price” only “at the  

time of removal”. This basic feature of  

Section 4 has never changed even after two  

amendments. The “place of removal” has  

been amended from time to time so that it  

could be expanded from a factory or any  

other premises of manufacture or  

production, to warehouses or depots  

wherein the excisable goods have been  

permitted to be deposited either with  

payment of duty, or from which such  

excisable goods are to be sold after  

clearance from a factory. In fact,  

Section 4(2) pre-2000 made it clear that  

where the price of excisable goods for  

delivery at the place of removal is not  

known, and the value thereof is  

determined with reference to the price  

for delivery at a place other than the  

place of removal, the cost of  

transportation from the place of removal  

to the place of delivery is to be excluded  

from such price. This is because the value  

of excisable goods under the section is  

to be determined only at the time and  

place of removal. Even after the  

amendment of Section 4 in 2000, the same  

scheme continues. Only, Section 4(2) is  

in terms replaced by Rule 5 of the Central  

Excise Valuation (Determination of Price  

of Excisable Goods) Rules, 2000.

47  

*  *  *  *  *  

18. It can be seen that Section 4 as  

amended introduces the concept of  

“transaction value” so that on each  

removal of excisable goods, the  

“transaction value” of such goods becomes  

determinable. Whereas previously, the  

value of such excisable goods was the  

price at which such goods were ordinarily  

sold in the course of wholesale trade,  

post-amendment each transaction is  

looked at by itself. However,  

“transaction value” as defined in  

sub-section (3)(d) of Section 4 has to be  

read along with the expression “for  

delivery at the time and place of  

removal”. It is clear, therefore, that  

what is paramount is that the value of the  

excisable goods even on the basis of  

“transaction value” has only to be at the  

time of removal, that is, the time of  

clearance of the goods from the  

appellant's factory or depot as the case  

may be. The expression “actually paid or  

payable for the goods, when sold” only  

means that whatever is agreed to as the  

price for the goods forms the basis of  

value, whether such price has been paid,  

has been paid in part, or has not been paid  

at all. The basis of “transaction value”  

is therefore the agreed contractual  

price. Further, the expression “when  

sold” is not meant to indicate the time  

at which such goods are sold, but is meant  

to indicate that goods are the  

subject-matter of an agreement of sale.  

Once this becomes clear, what the learned  

counsel for the assessee has argued must

48  

necessarily be accepted inasmuch as cash  

discount is something which is “known” at  

or prior to the clearance of the goods,  

being contained in the agreement of sale  

between the assessee and its buyers, and  

must therefore be deducted from the sale  

price in order to arrive at the value of  

excisable goods “at the time of removal”.  

24.  No doubt, there are decisions of the High  

Court which followed in MRF Ltd. [see 2007 (207) ELT  

31, Punjab and Haryana] to the effect that a  

subsequent reduction in prices would not entitle the  

assessee to lay a claim for refund.  In 2010(257)  

ELT 369, Karnataka, the Division Bench of Karnataka  

High Court distinguished the judgment of this Court  

in SKF India Ltd.(supra) by noting that in the said  

case after the goods were initially cleared and  

appropriate duty had been paid, subsequently the  

price escalation was due to the increase in input  

labour and other costs which was determined by the  

All India Industrial Prices Indices and by the  

Reserve Bank of India nominated by All India

49  

Electrical Manufacturer Association.  In terms of  

the said direction, the court noted that  

supplementary invoices were issued.  It was noted  

that the assessee had also paid differential price.   

It is undoubtedly the case of the appellant that the  

SLP carried against the said judgment has been  

dismissed.  We notice that this Court has given no  

reasons while dismissing the SLP.  

25.  In India Carbon Ltd. & Ors. vs. State of  

Assam 1997 (6) SCC 479 there was delay in payment  

of central sale tax.  The appellants were called  

upon to pay interest of 24% per annum by the sale  

tax authorities of the state of Assam under the Assam  

Sales Tax Act.  Following the judgment of the  

Constitution Bench in J.K. Synthetics v. CCE (supra)  

among other judgments, the court inter alia went on  

to hold that there is no substantive provision in  

the Central Act requiring payment of interest under

50  

the Central Sales Tax Act.  Though Section 9(2) was  

pressed into service by the Revenue and the said  

provision did refer to the power to recover interest  

under the State Act noticing the absence of any power  

to recover interest under the Central Act in respect  

of tax due under the Central Act, the Court took the  

view that interest could not be demanded from the  

appellant.  

CASE LAW UNDER THE INCOME TAX ACT.  

26.  Appellants have sought to derive support  

from certain judgments rendered by this Court under  

the Income Tax Act. In E.D. Sassoon & Co. Ltd. v.  

CIT  AIR 1954 SC 470, the appellant company which  

was the managing agent of certain companies agreed  

to transfer their agencies to two companies.   

Amounts were received on formal deeds of conveyance  

and transfer being executed in the year 1944.  The  

entire amount of the managing agency commission

51  

received by the transferees were assessed by the  

officers as income of the transferees for the year  

1945-1946.  In appeal the contention of the  

transferees was accepted, in that it was found that  

commission received by them should be apportioned  

on the proportionate basis and they were to be  

assessed on the commission earned during the period  

they had worked as managing agents of the respective  

companies.  Proceedings were commenced against the  

appellant who were transferors’ of the commission  

agency in regard to the amounts of the commission  

earned prior to the date of the respective  

transfers.  The case of the transferor inter alia  

was that no part of the commission for the broken  

period of 1943 was earned by them.  The contract of  

employment was an entire indivisible contract.  The  

Court had to consider the connotation of the word  

“earned” which was used in Section 4 of the Income

52  

Tax Act which fell for consideration.  The majority  

judgment inter alia held as follows:  

“35.  If therefore on the construction of  

the Managing Agency Agreements we cannot  

come to the conclusion that the Sassoons  

had created any debt in their favour or  

had acquired a right to receive the  

payments from the Companies as at the date  

of the transfers of the Managing Agencies  

in favour of the transferees no income can  

be said to have accrued to them. They had  

no doubt rendered services as Managing  

Agents of the Companies for the broken  

periods. But unless and until they  

completed their performance viz. the  

completion of the definite period of  

service of a year which was a condition  

precedent to their being entitled to  

receive the remuneration or commission  

stipulated thereunder no debt payable by  

the Companies was created in their favour  

and they had no right to receive any  

payment from the Companies. No  

remuneration or commission could  

therefore be said to have accrued to them  

at the dates of the respective transfers.  

40. It is no doubt true that the accrual  

of income does not much later depend upon  

its ascertainment or the accounts cast by  

assessee. The accounts may be made up at  

a much later date. That depends upon the  

convenience of the assessee and also upon  

the exigencies of the situation. The  

amount of the income, profits or gains may  

thus be ascertained later on the accounts  

being made up. But when the accounts are  

thus made up the income, profits or gains

53  

ascertained as the result of the account  

are referred back to the chargeable  

accounting period during which they have  

accrued or arisen and the assessee is  

liable to tax in respect of the same  

during that chargeable accounting  

period. “The computation of the profits  

whenever it may take place cannot  

possibly be allowed to suspend their  

accrual …”. “The quantification of the  

commission is not a condition precedent  

to its accrual”. (Per Ghulam Hassan, J.  

in CIT v. K.R.M.T.T. Thiagaraja  

Chetty and Co. [24 ITR 525 at p. 534] See  

also Isaac Holden and Sons,  

Ltd. v. Commissioners of Inland  

Revenue[12 TC 768], and Commissioners of  

Inland Revenue v. Newcastle Breweries  

Ltd.[12 TC 927] What has however got to  

be determined is whether the income,  

profits or gains accrued to the assessee  

and in order that the same may accrue to  

him it is necessary that he must have  

acquired a right to receive the same or  

that a right to the income, profits or  

gains has become vested in him though its  

valuation may be postponed or though its  

materialisation may depend on the  

contingency that the making up of the  

accounts would show income, profits or  

gains. The argument that the income,  

profits or gains are embedded in the sale  

proceeds as and when received by the  

Company also does not help the  

transferees, because the Managing Agents  

have no share or interest in the sale  

proceeds received as such. They are not  

co-sharers with the Company and no part  

of the sale proceeds belongs to them. Nor  

is there any ground for saying that the  

Company are the trustees for the business

54  

or any of the assets for the Managing  

Agents. The Managing Agents cannot  

therefore be said to have acquired a right  

to receive any commission unless and  

until the accounts are made up at the end  

of the year, the net profits ascertained  

and the amount of commission due by the  

Company to the Managing Agents thus  

determined. (See Commissioners of Inland  

Revenue v. Lebus) [(1946) 1 AER 476  

(Z3)”.  

55. The whole difficulty has arisen  

because the High Court could not  

reconcile itself to the situation that  

the transferees had not worked for the  

whole calendar year and yet they would be  

held entitled to the whole income of the  

year of account; whereas the transferors  

had worked for the broken periods and yet  

they would be held disentitled to any  

share in the income for the year. If the  

work done by the transferors as well as  

the transferees during the respective  

periods of the year were taken to be the  

criterion the result would certainly be  

anomalous. But the true test under  

Section 4(1)(a) of the Income Tax Act is  

not whether the transferors and the  

transferees had worked for any particular  

periods of the year but whether any income  

had accrued to the transferors and the  

transferees within the chargeable  

accounting period. It is not the work done  

or the services rendered by the person but  

the income received or the income which  

has accrued to the person within the  

chargeable accounting period that is the  

subject-matter of taxation. That is the  

proper method of approach while  

considering the taxability or otherwise

55  

of income and no considerations of the  

work done for broken periods or  

contribution made towards the ultimate  

income derived from the source of income  

nor any equitable considerations can make  

any difference to the position which  

rests entirely on a strict interpretation  

of the provisions of Section 4(1)(a) of  

the Income Tax Act.”    

27.  In Commissioner of Income Tax, Madras v. A.  

Gajapathy Naidu, Madras AIR 1964 SC 1653, a Bench  

of three learned Judges had to deal with the  

following factual scenario.  The respondent had  

entered into a contract with the government for  

supplying bread.  He was maintaining his accounts  

on mercantile basis.  Amount due was credited to his  

account sometime later.  The respondent  

represented to the Government complaining that he  

was supplying bread at a loss.  Therefore,  

Government directed payment of compensation for the  

loss which was supplied in 1948-1949.  He received  

a certain sum during the year 1950-1951.  This

56  

amount was included by the officer in the assessment  

year 1951-1952.  One of the contentions of the  

appellant assessee was that he had received sum in  

respect of the contract which was executed in the  

year 1948-1949 and therefore it could not be  

included in the assessment year 1951-1952.    This  

Court proceeded on the basis that amount received  

by way of compensation was taxable. It went on to  

consider the question whether the assessee had been  

assessed correctly in the year 1951-1952.  This  

Court allowed the appeal and took the view that the  

respondent-assessee was correctly assessed in the  

year 1951-1952.  It referred the case of  E.D.  

Sassoon & Co. Ltd. v. CIT  (supra) which we have  

already referred to.  The Court held inter alia as  

follows:  

“8. Under this definition accepted by this  

Court, an income accrues or arises when the  

assessee acquires a right to receive the  

same. It is common place that there are two

57  

principal methods of accounting for the  

income, profits and gains of a business-,  

one is the cash basis and the other, the  

mercantile basis. The latter system of  

accountancy "brings into credit what is due  

immediately it becomes legally due and  

before it is actually received; and it  

brings into debit expenditure the amount  

for which a legal liability has been  

incurred before it is actually disbursed."  

The book profits are taken for the purpose  

of assessment of tax, though the credit  

amount is not realized or the debit amount  

is not actually disbursed. If an income  

accrues within a particular year, it is  

liable to be-,assessed in the succeeding  

year. When does the right to receive an  

amount under a contract accrue or arise to  

the assessee i.e., come into existence?  

That depends upon the terms of a particular  

contract. No other relevant provision of  

the Act has been brought to our notice-for  

there is none- which provides an exception  

that though an assessee does not acquire a  

right to receive an income under a contract  

in a particular accounting year, by some  

fiction the amount received by him in a  

subsequent year in connection with the  

contract, though not arising out of a right  

accrued to him in the earlier year, could  

be related back to the earlier year and made  

taxable along with the income of that year.  

But that legal position is sought to be  

reached by a process of reasoning found  

favour with English courts. It is said that  

on the basis of proper commercial  

accounting practice, if a transaction  

takes place in a particular year, all that

58  

has accrued in respect of it, irrespective  

of the year when it accrues, should belong  

to the year of transaction and for the  

purpose of reaching that result closed  

accounts could be reopened. Whether this  

principle is justified in the English law,  

it has no place under the Indian Income tax  

Act. When an Income-tax Officer proceeds to  

include a particular income in the  

assessment, he should ask himself inter  

alia, two questions, namely, (i) what is  

the system of accountancy adopted by the  

assessee? and (ii) if it is mercantile  

system of accountancy, subject to the  

deemed provisions, when has the right to  

receive that amount accrued? If he comes to  

the conclusion that such a right accrued or  

arose to the assessee in a particular  

accounting year, he shall include the said  

income in the assessment of the succeeding  

assessment year. No power is conferred on  

the Income-tax Officer under the Act, to  

relate back an income that accrued or arose  

in a subsequent year to another earlier  

year on the ground that the said income  

arose out of an earlier transaction. Nor is  

the question of reopening of accounts  

relevant in the matter of as certaining  

when a particular income accrued or  

arose. Section 34 of the Act empowers the  

Income-tax Officer to assess the income  

which escaped assessment or was under-  

assessed in the relevant assessment year.  

Subject to the provisions of the section  

and following the procedure prescribed  

thereunder, he can include the escaped  

income and re-assess the assessee on the  

basis of which the earlier assessment was

60  

28.  In Vikrant Tyres Ltd. v. First Income Tax  

Officer, Mysore 2001(3) SCC 76 under an assessment  

order under the Income Tax Act, 1961 the appellant  

assessee paid the tax.  On his appeal being allowed  

the tax was refunded.  The High Court reversed the  

Appellate order.  On fresh demands being made the  

assessee repaid the tax as assessed and demanded.   

The revenue demanded payment of interest under  

Section 220(2) of Income Tax Act, 1961 for the period  

commencing with the refund of the tax.  This Court  

allowed the appeal filed by the assessee and took  

the view that no tax could be levied or imposed by  

an act of Parliament without the words “clearly  

disclosing such an intention”.  Finding there was  

no default in payment within the time by the assessee  

it was found that invocation of Section 220 was  

misplaced.  This Court purported to follow the  

decision in V.V.S. Sugars vs. Govt. of A.P. and

61  

Others  1999(4) SCC 192 (India Carbon vs. VBS  

Sugar).  The last judgment we would advert to under  

the Income Tax Act was rendered by one among us  

(Chief Justice Ranjan Gogoi) and the decision is  

P.G. & W. Sawoo (P) Ltd. v. CIT & Ors.  2017(13) SCC  

284.  The facts of the said case in a nutshell was  

as follows:    

The assessee had let out its premises to the  

Government.  The rent was enhanced with effect from  

01.9.1987.  The factum of enhancement was  

communicated to the assessee by letter dated  

29.3.1994.  The Income Tax Officer purported to  

reopen the assessment for the year 1989-1990.  The  

Court relying upon the judgment in E.D. Sassoon &  

Co. Ltd. v. CIT  (Supra) inter alia held as follows:  

“7. Viewed from the aforesaid  

perspective, it is clear that no such  

right to receive the rent accrued to the  

assessee at any point of time during the  

assessment year in question, inasmuch as  

such enhancement though with

62  

retrospective effect, was made only in  

the year 1994. The contention of the  

Revenue that the enhancement was with  

retrospective effect, in our considered  

view, does not alter the situation as  

retrospectivity is with regard to the  

right to receive rent with effect from an  

anterior date. The right, however, came  

to be vested only in the year 1994.”  

29.  It was accordingly found that the notice to  

reopen the assessment for the assessment year  

1989-1990 was without jurisdiction.    

30.  We are of the view that the appellants are  

not justified in seeking to derive support from the  

judgments rendered by this Court under the Income  

Tax Act.  The impact of taxing of income under the  

Income Tax Act would not be apposite for considering  

the question which arises in these cases which is  

whether interest can be levied under Section 11AB  

of the Act in respect of the amounts which are short  

paid or short levied inter alia.  Even it be that  

for the purpose of the Income Tax Act, it is only

63  

when on the basis that party agreed to escalation  

in price on a date which is after the date of the  

removal of goods rendering it exigible to income tax  

on a later date, it would be irrelevant for the  

purpose of deciding the liability to pay interest  

in terms of the clear provisions of the Act.  

31.  Now we may advert to the judgment of this  

Court in E.I.D. Parry (India) Ltd. v. CCT 2005 (4)  

SCC 779. The appellant therein was a manufacturer  

of sugar.  The minimum price of sugarcane which they  

purchased from farmers was payable immediately.  

Under Clause 5A of the Sugarcane (Control) Order  

1966, additional price was payable which would be  

determined only at the end of the year.  On the  

advice of the Government the manufacturer paid the  

additional price as advance at the time of purchase  

from the farmers and it was subsequently adjusted  

under Clause 5A.  In proceedings under the Tamil

64  

Nadu General Sales Tax Act 1959, the assessee showed  

the turnover on the basis of minimum price and paid  

tax thereon.  It did not pay tax on the additional  

price which has been paid but it was included in the  

turnover.  When the price was fixed under Clause 5A,  

the appellant filed revised return and paid tax.   

Interest was sought to be charged under Section  

24(3) on the price fixed under Clause 5A from the  

date of purchase of sugarcane till the payment of  

tax.  The appellants contended before this Court  

that the price determined under Clause 5A would be  

known only after it was determined.  Only then the  

same would be includable in the returns.  The  

advances given on advice from Government were merely  

ad hoc payments and did not constitute the price.    

32.  Under the Tamilnadu Sales Tax Act, the  

dealers were given an option to pay tax in advance

65  

on the basis of monthly return. Under Section 13(1)  

which provided for advance payment of tax, the tax  

could be collected in advance in monthly or  

prescribed instalment.  The assessing authority  

could provisionally determine the amount, payable  

in advance and intimate the dealer to pay the tax.   

Sub-section (2) of Section 13 provided that the  

dealer may at his option pay tax in advance on the  

basis of his actual turnover for each month or for  

such other period as prescribed.  Tax under this  

provision was to be paid on the basis of return to  

be filed by him.  It was also to become due without  

any notice of demand to the dealer inter alia.  The  

Court proceeded to take the view that in the monthly  

returns, the advance which was received by the  

assessee should have been included as part of the  

turnover.  When it came to the question relating to  

liability to interest, the Court referred to Section

66  

24 of the Act.  Section 24(3) provided for interest.   

It read as follows:  

“(3) On any amount remaining unpaid after  

the date specified for its payment as  

referred to in sub-section (1) or in the  

order permitting payment in instalments,  

the dealer or person shall pay, in  

addition to the amount due, interest at  

one-and-half per cent per month of such  

amount for the first three months of  

default and at two per cent per month of  

such amount for the subsequent period of  

default:  

Provided that if the amount  

remaining unpaid is less than one hundred  

rupees and the period of default is not  

more than a month, no interest shall be  

paid:  

Provided further that where a dealer  

or person has preferred an appeal or  

revision against any order of assessment  

or revision of assessment under this Act,  

the interest payable under this  

sub-section, in respect of the amount in  

dispute in the appeal or revision, shall  

be postponed till the disposal of the  

appeal or revision, as the case may be,  

and shall be calculated on the amount that  

becomes due in accordance with the final  

order passed on the appeal or revision as  

if such amount had been specified in the  

order of assessment or revision of  

assessment, as the case may be.”  

67  

33.  Thereafter, the Court in E.I.D. Parry  

(India)Ltd. V. Asst. Commercial of Commercial  

Taxes, Chennai held as follows:  

“….Under Section 24(1) if the tax has been  

assessed or has become payable under the  

Act, then the payment has to be made  

within the said time as may be specified  

in the notice of assessment and tax under  

Section 13(2) has to be paid without any  

notice of demand. However, as seen above,  

the tax under Section 13(2), in the  

absence of any determination by the  

assessing authority, is tax as per the  

returns. If default is made in payment of  

such tax then interest becomes payable  

under the Act. In the present case, it is  

an admitted position that tax as per the  

monthly return had been paid within time.  

It is also an admitted position that there  

was no assessment, even provisional, by  

the assessing authority prior to the  

final assessment made after the revised  

returns had been filed. Interest becomes  

payable under Section 24(3) on an amount  

remaining unpaid after the date specified  

for its payment under sub-section (1) of  

Section 24. As seen above, sub-section  

(1) of Section 24 deals with an assessed  

tax or tax which has become payable under  

the Act. In cases covered by Section 13(2)  

tax must be paid without any notice of  

demand. But as stated above, under  

Section 13(2) tax is to be paid “on the  

basis of such returns”. Tax as per the  

returns has admittedly been paid. If the  

returns were incomplete or incorrect as  

now claimed the assessing authority had

68  

to determine the tax payable and issue a  

notice of demand. In the absence of any  

assessment, even provisional, and a  

notice of demand no interest would be  

payable under Section 24(3). …”  

34.  Section 24(1) incidentally provided for a  

notice of assessment save as it was otherwise  

provided in Section 13(2).  The tax under Section  

13(2) was to be paid without any notice of demand.   

The Court drew support from the decision in JK  

Synthetics Ltd. (supra).  We may also notice the  

following discussion:  

“..In this respect the principles laid  

down in J.K. Synthetics Ltd.  

case [(1994) 4 SCC 276] fully apply even  

though the provisions of the Tamil Nadu  

General Sales Tax Act and the Rajasthan  

Act may not be identical. The principle  

to be kept in mind is, that, when the levy  

of interest emanates as a statutory  

consequence and such liability is a  

direct consequence of non-payment of tax,  

be it under Section 215 of the Income Tax  

Act or under Sections 7(2)/7(2-A) read  

with Section 11-B(a) of the Rajasthan  

Sales Tax Act, 1954 (as discussed in the  

decision of this Court in J.K. Synthetics  

Ltd. case [(1994) 4 SCC 276] ) or under  

Sections 13(2)/24(3) read with Rule 18(3)  

under the Tamil Nadu General Sales Tax

69  

Act, 1959, then such a levy is different  

from the levy of interest which is  

dependent on the discretion of the  

assessing officer. The default arising on  

non-payment of tax on an admitted  

liability in the case of self-assessment  

falls under Section 24(3) read with Rule  

18(3) which attracts automatic levy of  

interest whereas the default in filing  

incomplete and incorrect return falls  

under Rule 18(4) which attracts  

best-judgment assessment in which the  

levy of interest is based on the  

adjudication by the assessing officer.  

Therefore, Rule 18(3) and Rule 18(4)  

operate in different spheres…”  

35.  We are of the view that the scheme of the  

Central Excise Act and the Rules are a separate code.   

Section 11A is a provision for recovery.  If there  

is a non-levy, non-payment, short-levy or  

short-payment, the same becomes recoverable under  

Section 11A.  If there is any of the four  

contingencies referred to in Section 11A, then  

Section 11AB is attracted.  The working of the  

parent Act is intricately intertwined with the  

rules, the scope of which we have already referred

70  

to.  Therefore, if the value which is declared by  

way of self-assessment, by way of rule 6 and on which  

the duty is paid is not the full value then under  

the scheme of Section 11A read with Section 11AB and  

the Rules, the assessee incurs liability for  

interest when in a case where there is full value   

found and it dates back to the date of removal.  

36.  We have noticed that in this case admittedly  

that at the time goods were removed the price was  

not fixed.  The assessee was fully conscious of the  

fact that it was subject to variation.  Assessee  

must be imputed with knowledge that the value it was  

declaring was amenable to upward revision.  The  

circumstances were indeed clearly both apposite and  

appropriate for the assessee to invoke the  

provisions of Rule 7 and seek an order for  

provisional assessment.  In fact, take the example

71  

of manufacturer A and manufacturer B.  Both remove  

goods under contracts which contain escalation  

clauses.  Manufacturer A invokes Rule 7.  It seeks  

permission for removal of goods on provisional  

assessment.  Though an order of final assessment  

has to be passed within a period of time it is capable  

of being extended without any time limit.   

Manufacturer-A on the basis of upward revision of  

the price with retrospective effect and  

acknowledging the value to be the value as  

provisionally assessed and as enhanced by the  

escalation arrived at under the escalation clause  

pays the duty when the escalation comes into effect  

on the difference in the value under Rule 7.  Apart  

from payment of the differential excise duty  

manufacturer A becomes also liable to pay interest  

from the date when the escalation would come into  

play on the arrival at the higher price having

72  

retrospective operation.  Manufacturer B in  

identical facts clears the goods on the basis of  

self-assessment even though he is fully aware that  

the value of the goods which is paid is not fixed  

and is amenable to upward revision.  He  

deliberately chooses not to go in for provisional  

assessment.  Thereafter, he pleads that though he  

was aware that the value is not fixed and the prices  

on removal was tentative and was amenable to change  

since he has paid duty on the tentative value he is  

not liable to pay interest on the value of the goods  

on the differential duty which he is admittedly  

liable to pay.  Is it contemplated?       

37.  It was by Act No.26 of 1978 that Sections  

11A, 11B and 11C were inserted in the Act. Though  

it was inserted by Act 26 of 1978, it was brought  

into force only in 1980.  The words “levy, not paid,  

short levy and erroneously refunded” were not

73  

expressions which were however introduced for the  

first time through Section 11A.  Rule 10 of the  

Central Excise Rules 1944 made under the Act as it  

read was as follows:  

“10. Recovery of duties not levied or not  

paid, or short-levied or not paid in full  

or erroneously refunded.—(1) Where any  

duty has not been levied or paid or has  

been short-levied or erroneously  

refunded or any duty assessed has not been  

paid in full, the proper officer may,  

within six months from the relevant date,  

serve notice on the person chargeable  

with the duty which has not been levied  

or paid, or which has been short-levied,  

or to whom the refund has erroneously been  

made, or which has not been paid in full,  

requiring him to show cause why he should  

not pay the amount specified in the  

notice:  

Provided that—  

(a) where any duty has not been levied or  

paid or has been short-levied or has not  

been paid in full, by reason of fraud,  

collusion or any wilful misstatement or  

suppression of facts by such person or his  

agent, or  

(b) where any person or his agent,  

contravenes any of the provisions of  

these rules with intent to evade payment  

of duty and has not paid the duty in full,  

or  

74  

(c) where any duty has been erroneously  

refunded by reason of collusion or any  

wilful misstatement or suppression of  

facts by such person or his agent, the  

provisions of this sub-section shall, in  

any of the cases referred to above, have  

effect as if for the words ‘six months’,  

the words ‘five years’ were substituted.  

Explanation.—Where the service of the  

notice is stayed by an order of a court,  

the period of such stay shall be excluded  

in computing the period of six months, or  

five years, as the case may be.  

(2) The Assistant Collector of Central  

Excise shall, after considering the  

representation, if any, made by the  

person on whom notice is served under  

sub-rule (1), determine the amount of  

duty due from such person (not being in  

excess of the amount specified in the  

notice) and thereupon such person shall  

pay the amount so determined.  

(3) For the purposes of this rule,—  

(i) ‘refund’ includes rebate referred to  

in Rules 12 and 12-A;  

(ii) ‘relevant date’ means,—  

(a) in the case of excisable goods on  

which duty of excise has not been levied  

or paid or on which duty has been  

short-levied or has not been paid in full,  

the date on which the duty was required  

to be paid under these rules;  

(b) in the case of excisable goods on  

which the value or the rate of duty has  

been provisionally determined under

75  

these rules, the date on which the duty  

is adjusted after final determination of  

the value or the rate of duty, as the case  

may be;  

(c) in the case of excisable goods on  

which duty has been erroneously refunded,  

the date of such refund.”  

38.  Thus, Rule 10 did provide for recovery of  

duties which were not levied or not paid or short  

levied or erroneously refunded.  What is the  

position as far as the expression short paid to be  

found in Section 11A of the Act is concerned?  Was  

there a counterpart in Rule 10?  A perusal of Rule  

10 would show that the expression ‘short paid’ as  

such was not used in Rule 10 as it is used in Section  

11A.  However, we notice that Rule 10 did  

contemplate recovery of duties which was assessed  

but have not been paid in full.    

39.  Before we proceed to pronounce on the scope  

of the expression ‘short paid’ in Section 11A, we  

deem it appropriate also to refer to Rules 173-B and

76  

173-C of the Central Excise Rules, 1944.  The  

relevant provisions thereof read as follows:  

“173-B. Assessee to file list of goods  

for approval of the proper officer.—(1)  

Every assessee shall file with the proper  

officer for approval a list in such form  

as the Collector may direct, in  

quintuplicate, showing—  

(a) the full description of — (i) all  

excisable goods produced or manufactured  

by him, (ii) all other goods produced or  

manufactured by him and intended to be  

removed from his factory, and (iii) all  

the excisable goods already deposited or  

likely to be deposited from time to time  

without payment of duty in his warehouse;  

(b) the Chapter, Heading No. and  

Sub-Heading No., if any, of the Schedule  

to the Central Excise Tariff Act, 1985 (5  

of 1986) under which each such goods fall;  

(c) the rate of duty leviable on each such  

goods; and  

(d) such other particulars as the  

Collector may direct.  

(2) The proper officer shall, after such  

inquiry as he deems fit, approve the list  

with such modifications as are considered  

necessary and return one copy of the  

approved list to the assessee who shall,  

unless otherwise directed by the proper  

officer, determine the duty payable on

77  

the goods intended to be removed in  

accordance with such list.  

(2-A) All clearances shall, subject to  

the provisions of Rule 173-CC, be made  

only after the approval of the list by the  

proper officer. If the proper officer is  

of the opinion that on account of any  

inquiry to be made in the matter or for  

any other reason to be recorded in  

writing, there is likely to be delay in  

according the approval, he shall, either  

on a written request made by the assessee  

or on his own accord, allow such assessee  

to avail himself of the procedure  

prescribed under Rule 9-B for provisional  

assessment of the goods.  

(3) Where the assessee disputes the rate  

of duty approved by the proper officer in  

respect of any goods, he may, after giving  

an intimation to that effect to such  

officer, pay duty under protest at the  

rate approved by such officer.  

(4) If in the list approved by the proper  

officer under sub-rule (2), any  

alteration becomes necessary because of—  

(a) the assessee commencing production,  

manufacture or warehousing of goods not  

mentioned in that list, or  

(b) the assessee intending to remove from  

the factory any non-excisable goods not  

mentioned in that list, or  

(c) a change in the rate or rates of duty  

in respect of the goods mentioned in that  

list or, by reason of any amendment to the  

Schedule to the Central Excise Tariff  

Act, 1985 (5 of 1986), a change in the  

Chapter, Heading No. and Sub-Heading No.

78  

the assessee shall likewise file a fresh  

list or an amendment of the list already  

filed for the approval of such officer in  

the same manner as is provided in sub-rule  

(1).  

(5) When the dispute about the rate of  

duty has been finalized or for any other  

reasons affecting rate or rates of duty,  

a modification of the rate or rates of  

duty is necessitated, the proper officer  

shall make such modification and inform  

the assessee accordingly.  

(6) The Collector may exempt by a general  

order any class of assessees, who  

manufacture wholly goods which, for the  

time being, are exempt from paying duty,  

from filing the list under sub-rule (1):  

Provided that as and when duty exemption  

is withdrawn or modified or no longer  

applicable, the assessee shall comply  

with the provisions of sub-rule (4) as if  

he had filed a list earlier and the list  

had been approved with ‘nil’ rate of duty.  

173-C. Assessee to file price list of  

goods assessable ad valorem.—(1) Every  

assessee who produces, manufactures or  

warehouses goods which are chargeable  

with duty at a rate dependent on the value  

of the goods, shall file with the proper  

officer a price list, in such form and in  

such manner and at such intervals as the  

Collector may require, showing the price  

of each of such goods and the trade  

discount, if any, allowed in respect  

thereof to the buyers along with such  

other particulars as the Central Board of  

Excise and Customs or the Collector may  

specify.

79  

(2) Prior approval by the proper officer  

of the price list filed by an assessee  

under sub-   rule(1) shall be necessary  

only, where the assessee—  

(i) sells goods to or through a related  

person as defined in Section 4 of the Act;  

or  

(ii) uses such goods for manufacture or  

production of other goods in his factory;  

or  

(iii) clears such goods for free  

distribution; or  

(iv) clears such goods in any other manner  

which does not involve sale to a  

non-related person; or  

(v) clears the goods of the same kind and  

quality from his factories located in the  

jurisdiction of different Collectors of  

Central Excise or Assistant Collectors of  

Central Excise; or  

(vi) submits a fresh price list or an  

amendment of the price list already filed  

with the proper officer and which has the  

effect of lowering the existing value of  

the goods.  

***   ***   ***  

(5) Subject to the provisions of Rule  

173-CC, an assessee specified in sub-rule  

(2) shall not clear any goods from a  

factory, warehouse or other approved  

place of storage unless the price list has  

been approved by the proper officer. In  

case the proper officer is of the opinion  

that on account of any enquiry to be made  

in the matter or for any other reasons to  

be recorded in writing, there is likely  

to be delay in according approval, he  

shall either on a written request made by  

the assessee or of his own accord allow

80  

such assessee to avail himself of the  

procedure prescribed under Rule 9-B for  

provisional assessment of the goods.”    

40.  We have already noticed that the new Central  

Excise Rules have come into force known as Central  

Excise Rules 2002.  Under Rule 173-B of the  

erstwhile Rules, the method of assessment and  

payment of tax was essentially by the assessee  

filing a classification list under Rule 173-B which  

inter alia was to contain the rate of duty leviable.  

The Rule further contemplated approval of the said  

list with any modification as may be considered  

necessary.  The clearance was, subject to the  

provision of Rule 173-CC, to be made only after the  

approval by the competent officer.  Equally under  

rule 173(C), the assessee, the manufacturer or  

producer or one who warehoused goods chargeable with  

duty on the value of goods was to file a price list.  

Prior approval was necessary only in certain

81  

circumstances which included sale to or through  

related person as defined in Section 4 of the Act.   

Under Sub-rule 5 of Section 173-C again subject to  

the provisions of Rule 173CC, the assessee covered  

by Rule 173C(2) could not clear any goods from a  

factory, warehouse or other approved place of  

storage unless the price list was approved.  Under  

the new dispensation namely, Excise Rule 2002, we  

have noticed that assessment was based on the value  

and the rate of tax as declared by the assessee.  

41.  In the context of Rule 173B and 173C,  

questions have arisen before this Court as to the  

effect of notice issued under Rule 10 of the Excise  

Rules, 1944 when the approved classification was  

sought to be reopened. The Assistant Collector  

sought to revise the net assessable value and  

recover the differential duty. A Bench of two

82  

learned Judges held in Rainbow Industries (P) Ltd.  

v. CCE (1994)6 SCC 563, that once the price list was  

approved and acted upon this reclassification would  

be effective from the date of issue of the show cause  

notice. A Bench of three learned Judges in Balarpur  

Industries Ltd. v. Assistant Collector of Customs  

and Central Excise & Ors. (1995) Supplement 3 SCC  

429, sought to confine the aforesaid judgment to the  

facts of the case. Finally, the matter was  

considered by a Constitution Bench in the case of  

Collector of Central Excise, Baroda v. Cotspun Ltd.  

reported in (1999) 7 SCC 633. This Court approved  

the view taken in Rainbow Industries (supra) and it  

disapproved of Balarpur Industries noticing that it  

did not advert to Rule 173-B. In the course of  

judgment, the Court inter alia held as follows:  

“12. Rule 173-B deals with  

classification lists. It entitles the  

proper officer of Excise to make such  

enquiry thereon as he deems fit and

83  

requires him to approve the list only  

thereafter, and that with such  

modifications as are considered  

necessary. The assessee must determine  

the excise duty that is payable by him on  

the goods he intends to remove in  

accordance with the approved  

classification list. Sub-rule (5)  

provides for modification of an approved  

classification list.  

13. Rule 10 is a provision for recovery  

of duties that have not been levied or  

paid in full or part. So far as is relevant  

for our purposes, it provides that where  

any duty has been short-levied, the  

Excise Officer may, within six months  

from the relevant date, serve notice on  

the assessee requiring him to show cause  

why he should not pay the amount that had  

been short-levied. Rule 10 does not deal  

with classification lists or relate to  

the reopening of approved classification  

lists. That is exclusively provided for  

by Rule 173-B.  

14. The levy of excise duty on the basis  

of an approved classification list is the  

correct levy, at least until such time as  

to the correctness of the approval is  

questioned by the issuance to the  

assessee of a show-cause notice. It is  

only when the correctness of the approval  

is challenged that an approved  

classification list ceases to be such.  

15. The levy of excise duty on the basis  

of an approved classification list is not  

a short levy. Differential duty cannot be

84  

recovered on the ground that it is a short  

levy. Rule 10 has then no application.”  

      (Emphasis supplied)  

42.  A Bench of two learned Judges in the case of  

M/s. Eastland Combines, Coimbatore v. Collector of  

Central Excise, Coimbatore reported in AIR 2003 SC  

843 after noticing the judgment in Ballarpur  

Industries, Rainbow and also noticing the change  

brought about by the Finance Act 10 of 2000 in  

Section 11A, proceeded to take the view that in view  

of the amendment, the basis for arriving at the  

conclusion that Rule 10 does not deal with  

classification list or relate to the reopening of  

classification list is altered and the conditions  

on which Cotspun (supra) judgment was rendered in  

(1999)7 SCC 633 was fundamentally altered. The view  

taken in M/s. Eastland Combines, Coimbatore (supra)  

came to be doubted by another Bench of two Judges.

85  

Consequently, again it was referred to a Bench of  

three learned Judges and the reference came to be  

answered in the decision reported in ITW Signod  

India Limited  vs. Collector of Central Excise  

reported in (2004) 3 SCC 48. Thereunder, the Court,  

after referring to the 1994 Rules, Section 11A which  

was introduced in the Act, the amendment which was  

brought about by Section 97 of the Finance Act, 2000,  

found that Section 11A, as amended by the Finance  

Act, 2000 brought about a completely different  

situation in the course of the judgment of the Court  

held inter alia as under:  

“55. Section 11-A deals with a case when  

inter alia excise duty has been levied or  

has been short-levied or short-paid. The  

word “such” occurring after the words  

“whether or not” refers to non-levy,  

non-payment, short-levy or short payment  

or erroneous refund. It is, therefore,  

not correct to contend that the word  

“such” indicates only such short-levy  

which has been held to be non-existent  

in Cotspun [(1999) 7 SCC 633] having  

regard to Rule 173-B. Such short-levy or  

non-levy may be on the basis of any

86  

approval, acceptance or assessment  

relating to the rate of duty on or  

valuation of excisable goods. Thus, any  

approval made in terms of Rule 10  

(sic 173-B), in the event, any mistake  

therein is detected, would also come  

within the purview of the expression  

“such short-levy or short payment”. Such  

notice is to be served on the person  

chargeable with the duty which inter alia  

has been short-levied or short-paid.”  

57. The procedure laid down under Rule  

173-B of the Rules has specifically been  

included in the Act. Furthermore, by  

reason of the amended Act a provision has  

been made for reopening the approved  

classification lists. It is a procedural  

provision, in terms whereof statutory  

authorities are required to determine as  

to whether the earlier classification was  

correctly done or not. The said authority  

upon giving an opportunity of hearing to  

the parties may come to the conclusion  

that decision on the approval granted  

need not be reopened and even if the same  

is reopened, the reasons therefor are to  

be stated. As the provision of Section  

11-A is a recovery provision as regards  

non-levy or non-paid or short-levy or  

short-paid or erroneously refunded  

duties by reason of the said amendment,  

Parliament had merely provided that an  

approval on the basis of a classification  

list inter alia in case of a short-levy  

can be recovered if a finding is arrived  

at that the goods had undergone a  

short-levy. For the aforementioned  

purpose, Section 110 of the Finance Act,  

validating actions taken under Section  

11-A can be taken into consideration

87  

whereby and whereunder a legal fiction is  

created.”  

        (Emphasis supplied)    

43.  Section 11A, thus, was held to be a recovery  

provision as regards non-levy, non-paid,  

short-levy,  short-paid or erroneously refunded  

duty. Levy of excise duty under Rule 10 of the Excise  

Rules, 1944 on the basis of approved classification  

list or price list was found to be correct levy. It  

did not give rise to short-levy. Undoubtedly, the  

amended provisions of Section 11A empowered  

recovery of duty even in a case where the  

classification list has been approved earlier and  

it would operate from the date of removal and not  

from the date on which show cause was issued.  

44.  In the case of N.B. Sanjana, Assistant  

Collector of Central Excise, Bombay & Ors. v. The  

Elphinstone Spinning and Weaving Mills Co. Ltd.;

88  

1978 E.L.T. (J 399), the contention of the assessee  

was that neither Rule 9 nor Rule 10A (1944 Rules)  

gave power to the Revenue to raise the demand notice  

involved in the said case.  The demand had to be made  

if at all under Rule 10 and the demand having been  

made long after three months, contrary to what was  

prescribed in the said Rule, the notices were  

illegal and void. The court inter alia held as  

follows:-    

“14. We are not inclined to accept the  

contention of Dr. Syed Mohammad that the  

expression 'levy' in Rule 10 means actual  

collection of some amount. The charging  

provision Section 3(i) specifically says  

"There shall be levied and collected in  

such a manner as may "be prescribed the  

duty of excise. It is to be noted that  

Sub-section (i) uses both the expressions  

"levied and collected" and that clearly  

shows that the expression "levy" has not  

been used, in the Act or the Rules as  

meaning actual collection. Dr. Syed  

Mohammad is, no doubt, well founded in his  

contention that if the appellants have  

power to issue notice either under Rule  

10A or Rule 9(2), the fact that the notice

89  

refers specifically to a particular rule,  

which may not be applicable, will not make  

the notice invalid on that ground as has  

been held by this Court in J.K. Steel Ltd.  

v. Union of India (1969) 2 SCR 418 = (AIR  

1970 SC 1173).   

“If the exercise of a power can be traced  

to a legitimate source, the fact that the  

same was purported to have been exercised  

under a different power does not vitiate  

the exercise of the power in question.  

This is a well settled proposition of law.  

In this connection reference may usefully  

be made to the decisions of this Court in  

B. Balakotaiah v. The Union of India:  

[1958]SCR 1052 = (AIR 1958 SC 232); and  

Afzal Ullah v. State of U.P. [1964]4SCR  

991 = (AIR 1964 SC 264).  

The Court further proceeded to held as follows:-  

“18. This now takes us to the question of  

proper interpretation to be placed on the  

expression "short-levied" and "paid" in  

Rule 10. Does the expression  

"short-levied" mean that some amount  

should have been levied as duty as  

contended by Dr. Syed Mohammad or will  

that expression cover even cases where  

the assessment is of 'nil duty', as  

contended by Mr. Daphtary. What is the  

meaning of the word "paid" in Rule 10 ?  

It is contended on behalf of the  

appellants that it means "actually paid",  

whereas, according to the respondents, it  

means "ought to have been paid". Taken  

literally, the word "paid" does mean

90  

actually paid in cash. That means that a  

party or an assessee must have paid some  

amount of duty whatever may be the  

quantum. If this literal interpretation  

is placed on the expression "paid" in rule  

it is needless to state that it will  

support in a large measure the contention  

of Dr. Syed Mohammad that Rule 10  

contemplates a short-levy in the sense  

that the amount which falls short of the  

correct amount has been assessed and  

actually paid. In our opinion, the  

expression "paid" should not be read in  

a vacuum and it will not be right to  

construe the said word literally, which  

means actually paid. That word will have  

to be understood and Interpreted in the  

context in which it appears in order to  

discover its appropriate meaning. If this  

is appreciated and the context is  

considered it is apparent that there is  

an ambiguity in the meaning of the word  

"paid". It must be remembered that Rule  

10 deals with recovery of duties or  

charges short levied or erroneously  

refunded. The expression "paid" has been  

used to denote the starting point of  

limitation of three months for the issue  

of a written demand. The Act and the Rules  

provide in great detail the stage at which  

and the time when the excise duty is to  

be paid by a party. If the literal  

construction that the amount should have  

been actually paid is accepted, then in  

case like the present one on hand, when  

no duty has been levied, the Department  

will not be able to take any action under  

Rule 10. Rule 10-A cannot apply when a  

short-levy is made through error or  

misconstruction on the part of an  

officer, as such a case is specifically

91  

provided by Rule 10. therefore, in our  

opinion, the proper interpretation to be  

placed on the expression "paid" is "ought  

to have been paid". Such an  

interpretation has been placed on the  

expression "paid" occurring in certain  

other enactments as in Gursahai Saigal v.  

Commissioner of Income-tax, Punjab  

[1963] 3 SCR 893 = (AIR 1963 SC 1062), and  

in Allen v. Thorn Electrical Industries  

Ltd. (1968) 1 QB 487. In (1963) 3 SCR 893  

= (AIR 1963 SC 1062, the question arose  

as follows: In certain assessment  

proceedings under the Indian Income-tax  

Act, 1922, an assessee was charged with  

interest Under Sub-section (8) of  

Section 18A of that Act Under that  

Sub-section interest calculated in the  

manner laid down in Sub-section (6) of  

Section 18A was to be added to the tax  

assessed. Sub-section 3 of  

Section 18A dealt with cases of a person  

who has not been assessed before and he  

was required to make his own estimate of  

the tax payable by him and pay  

accordingly. Sub-section (3) of  

Section 18A was applicable to the  

assessee in that case. However, he  

neither submitted any estimate nor did he  

pay any advance tax. Under Sub-section  

(6) of Section 18A it was provided:  

“Where in any year an assessee has paid  

tax Under Sub-section(2) or Sub-section  

(3) on the basis of his own estimate, and  

the tax so paid is less than eighty  

percent of the tax determined on the  

basis of regular assessment simple  

interest at the rate of six per cent per  

annum from the 1st day of January in the

92  

financial year in which the tax was paid  

up to the date of the said regular  

assessment shall be payable by the  

assessee upon the amount by which the  

tax so paid falls short of the said  

eighty percent.”  

“25. We may point out that if the  

contention of Dr. Syed Mohammad that in  

order to constitute short-levy, some  

amount should have been assessed as  

payable by way of duty so as to make Rule  

10 applicable, is accented the result  

will be rather anomalous. For instance if  

due to collusion (which means collusion  

between a party and an officer of the  

Department) a sum of Rs. 2/-is managed to  

be assessed by way of duty when really  

more than thousand times that amount is  

payable and if the smaller amount of duty  

so assessed has been paid, the Department  

will have to take action within three  

months for payment of the proper amount  

of duty. On the other hand, if due to  

collusion again an order of nil  

assessment is passed, in which case no  

duty would have been paid, according to  

the appellants Rule 10A will apply. We do  

not see any reason to distinguish the  

above two cases one from the other. Both  

are cases of collusion and if an assessee  

in collusion manages to have a petty  

amount of duty assessed and paid he can  

effectively plead limitation of three  

months under Rule 10. Whereas in the same  

case of collusion where no duty has been  

levied there will be no period of  

limitation. In our opinion, that will not  

be a proper interpretation to be placed  

on Rule 10A by us. By the interpretation  

placed by us on Rule 10, the position will

93  

be that an assessee who has been assessed  

to a smaller amount as well as an assessee  

who has been assessed to nil duty will all  

be put on a par and that is what is  

intended by Rule 10.”  

      (Emphasis supplied)  

45.  In fact, it is to be noticed, that Section  

11A which was inserted by Act 26 of 1978 is  

substantially the reproduction of Rule 10 of 1944  

Rules. We notice, in fact, the following answers  

given by Shri Satish Aggarwal, the Minister of State  

in the Ministry of Finance, as regards, the reasons  

for Act 26 of 1978 by which Section 11A was  

inserted:-  

“Shri Amrit Nahata made a frontal attack  

on clause 24 and asked, why are you going  

to increase the limit with regard to short  

levy from six months to five years?  

Previously, there was no limit. It was  

only in August 1977 that the rules were  

amended and provision made in the rules  

to fix a time limit in the case of fraud.  

Earlier, a case could be reopened even  

after 20 years in the case of fraud. In  

1977 the rules prescribed a time limit of  

five years in the case of fraud.  

Otherwise, the period was unlimited. When  

we limited the period to five years, the  

Committee on Subordinate Legislation

94  

recommended that instead of  

incorporating such an important  

provision in the rules it should find a  

place in the Act itself. That is why we  

have brought in this amendment to the Act.  

Otherwise, since those rules were laid on  

the Table of the House by implication they  

were approved by the House without any  

amendment. So, that is more or less the  

law now. We are only incorporating it in  

the Act, as recommended by the Committee  

on Subordinate Legislation.”  

46.  It is apparently thus that Section 11A came  

to be inserted.  

47.  Coming to Section 11AB, it came to be  

inserted by Act 33 of 1996. Thereafter, it was  

amended by Act 10 of 2000, Act 14 of 2001, Act 20  

of 2002 and Act 49 of 2005.  We have already  

extracted the relevant provisions of the said  

section. Section 11A must necessarily be read with  

Section 11AB. This is for the reason that interest  

under Section 11AB is premised upon the duty of  

excise not being levied or paid or short levied,  

short paid or erroneously refunded. Such duty is

95  

either determined under sub-Section(2) of Section  

11A or without such determination it being paid  

under Section 2B of Section 11A. In any of the  

circumstances, namely, non-levy, non-payment,  

short-levy and short-paid, any duty has been  

determined or paid as has been provided under  

Section 11A, necessarily the assessee becomes  

liable to pay interest from the first date of the  

month succeeding the month in which duty ought to  

have been paid.  

48.  The question which we are necessarily called  

upon to decide is when price is revised upward with  

retrospective effect and the excise duty on the same  

is paid immediately  on a future date whether  

interest is payable under Section 11AB from the  

first day of the month succeeding the month in which  

the duty ought to have been paid under the Act. To  

keep the matter in focus, the exact question is which

96  

is the month in which the duty ought to have been  

paid.   

49.  Under the Rules, goods become exigible to  

duty on removal.  Assessment is to be done by  

assessee itself by way of self-assessment. In a case  

where duty is payable on the basis of the value, the  

assessee is to apply the rate of duty to the value  

and pay the duty on or before the sixth day of the  

month succeeding the month in which removal of the  

goods takes place. Undoubtedly, if the removal takes  

place in March, the payment is to be made by 31st of  

March.  

50.  We have also noticed what happens if there  

is provisional assessment.  In the case of  

provisional assessment, the assessee entertains a  

doubt regarding the actual value or the rate of duty.   

He applies and he is permitted under the order to  

remove goods on a provisional assessment.  The

97  

assessment is thereafter finalized.  When the  

provisional assessment is finalized, the assessee  

becomes liable however to pay interest from the  

first date of the month succeeding the month for  

which the amount is determined.  We have no doubt  

in our mind that under Rule 7(4), the expression  

“succeeding the month for which such amount” is  

determined refer to the month of removal of the  

goods.  When the provisional assessment has such  

consequences, it would occasion an invidious  

discrimination to place an interpretation on  

Section 11AB by which those assesses who go in for  

provisional assessment under Rule 7 are called upon  

to pay interest upon finalization of the assessment  

with reference to the date of removal in a case where  

the value is fully determined as a result of  

escalation clause being worked resulting in an  

upward revision of prices and under Section 11AB

98  

payability arises with reference to the date of  

decision to grant escalation.  In other words, the  

law will have to be interpreted in a manner that it  

is fair and equal to similarly situated group of  

assessees.  Legislative intention, in this regard,  

also cannot be otherwise.  Legislature has clearly  

in Section 11AB spelt out the time with reference  

to the Act and the Rules.  Under Section 11AB in the  

case of short levy or short payment inter alia, the  

expression “month in which the duty has become  

payable” under the Act and the rules must be  

understood as the month in which the duty is payable  

under the Rules made under the Act.   Thus, if goods  

are removed in the month of January ordinarily  

payment must be made by the 6th of February.  If the  

duty is not paid by the 6th of February, Section 11AB  

must be understood as mulcting the assessee  with  

liability to pay interest from the first day of March

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in the example we have given.  If the assessee went  

in for provisional assessment under rule 7, it  

becomes liable from the 1st day of the month  

following the month for which the amount is  

determined.    

51.  The expression “the month in which the duty  

ought to have been paid” under this Act, when it is  

read alongwith Rule 8, which declares that the duty  

on the goods removed from the factory or warehouse  

during a month is to be paid on the 6th day of the  

following month would mean that the Legislature has  

understood the expression “the month in which the  

duty ought to have been paid” under the Act in the  

same sense as it is declared in Rule 8.    

52.  In this regard it is also pertinent to notice  

the finding in the order of the original authority  

that perusal of the Circular dated 01/07/2004 makes  

it unambiguously clear that the price was understood

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as provisional price.  This belies quite clearly  

the case of the appellant that the price was final.   

Could the assessee in the light of the Circular even  

for a moment in the same breath contend that the  

assessee was unhesitatingly ready and able to  

determine the price and hence the value.  We would  

think that it certainly presented a situation where  

the assessee should have resorted to Rule 7.  

53.  As we have already noted, SAIL has paid the  

differential duty of Rs.142.78 crores even without  

waiting for any notice under Section 11A(1).  The  

assessee volunteered and made payment in October  

2006.  We find merit in the finding by the authority  

that this is a case where therefore the payment made  

by the assessee is to be treated as one falling under  

Section 11A(2)b).  This meant also that there was  

no need for determination of the duty within the

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meaning of Section 11A(2)(a) or issuance of notice  

under Section 11A.  

54.  It is important to notice that when we  

contrast Section 11A as it was introduced with  

effect from 15.11.1980 with Section 11A after  

amendment by Section 97 of the Finance Act, 2000,  

we find that in the later avtar of Section 11A, the  

following words have been inserted: -  

“Whether or not such non-levy or non-payment,  short-levy or short-payment or erroneous  

refund, as the case may be, was on the basis  

of any approval, acceptance or assessment  

relating to the rate of duty on or valuation  

of excisable goods under any other provisions  

of this Act or the rules made thereunder.”  

No doubt, it had the effect of taking away the  

basis for the decision in the case of Collector of  

Central Excise, Baroda v. Cotspun Ltd. reported in  

(1999) 7 SCC 633, which took the view that a levy  

based on the approved classification list, is not  

short-levy.  But its impact goes beyond the same.

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Power under Section 11A to recover the duty which  

has not been levied or not been paid or short-levied  

or short-paid will be available inter alia  

irrespective of, whether the aforesaid contingency  

was or was not the result of any approval, acceptance  

or assessment either relating to the rate of duty  

or the valuation under the Act and the Rules. Thus,  

even when there has been an assessment or acceptance  

in relation to the rate of duty or valuation, it does  

not stand in the way of invoking power under Section  

11A.  

55.  Rule 12 declares that every assessee is to  

file monthly returns.  There is no provision in the  

rule which contemplates an assessment as such based  

on the return by the authorities. Assessment is  

self-assessment by the assessee under Rule (6).     

No doubt, in the case covered by Rule 7 there is a  

provisional assessment followed by a final

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assessment. The main ingredients for  

self-assessment would appear to be (1) the rate of  

duty (2) valuation (3) quantity of removal.  

56.  Are cases of non-levy, non-payment,  

short-levy and short-payment mutually exclusive?.   

In other words, can it be said that in a case of  

non-payment, it would not be a case of non-levy?  Do  

they overlap?  If there is non-levy, will there by  

short levy at the same time.  Finally, in a case of  

short levy, can there also be short payment?  

57.  What is levy?  We have already noticed that  

in the decision of this Court in N.B. Sanjana  

(supra), this Court rejected the argument of the  

Revenue that levy in Rule 10 means collection of some  

amount.  The Court went on to hold that levy has not  

been used in the Act or the rules as meaning actual  

collection.

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58.  In a case where goods are removed  

clandestinely, there would be no levy.  Equally,  

there will be non-payment.  Thus, a case of non-levy  

can overlap with non-payment.  No doubt, there can  

be cases where despite full levy there can be no  

payment, may be by mistake or otherwise.  Equally  

thus, if there is no non-levy, there can be partial  

payment.  That would make it a case of short payment  

as the payment does not match the amount of duty  

levied as per the self-assessment carried out by the  

assessee.  A short levy ordinarily would be a case  

where out of the ingredients of assessment, namely,  

(1) rate of duty, (2) valuation and (3) quantity  

removed, the components all or any are incorrectly  

applied. As an instance if the full rate of duty  

applicable is not applied though the valuation and  

the quantity is correctly arrived at, it may fall  

under short-levy.  In one sense it could be said

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that there is short-payment also, as if payment  

could be understood as the amount which ought to have  

been paid but it has not been paid, it may be a case  

of short payment.  But it may be more appropriate  

to put it under short levy where the deficit in  

payment is essentially in terms of a short-levy.  

59.  We are here concerned in these cases with one  

of the ingredients of assessment, namely,  

valuation.  There is no dispute regarding the  

quantity removed.  There is no issue relating to  

rate of duty.  The dispute is relating to the  

correct value.  To appreciate it better, let us take  

an example of an assessee who deliberately  

undervalues the goods which he removed.  This  

results in assessee arriving at an amount which  

would not be the correct amount.  He pays this  

incorrectly assessed amount.  Would it be a case of

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short levy or short payment?  If short- levy is to  

be understood as confined to cases where the  

assessment is not the full assessment, taking into  

account the parameters involved correctly, namely,  

rate of duty, valuation and quantity it could be  

classified as a case of short levy as one of the  

components of proper assessment namely, valuation  

has been incorrectly arrived at.  The payment in  

such a case is made in terms of the incorrectly  

assessed figure. The payment matches the  

assessment.  In fact, it is worthwhile to recall  

that under Rule 10 of 1944 Rules which we have  

adverted to., the expression “short-payment” is not  

used.  Instead the words duty has not been paid in  

full, has been used. No doubt, in a case where in  

law though the amount which is paid is in harmony  

with the amount which is assessed, it is not the  

amount which ought to have been paid by the assessee.  

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The absence of full payment of duty or short payment  

has indeed also in one sense taken place.  In a case  

where there is an escalation clause goods are  

cleared on a provisional price. Consequently, the  

value is provisional. There is a subsequent  

escalation with retrospective effect. It will  

affect the valuation which was employed in the  

self-assessment by the assessee which would  

necessarily be provisional.  Enhancement of the  

value will date back to the dates of removal in view  

of the retrospective operation. Admittedly the  

liability for payment of differential duty has   

arisen.  Upon the true value, in a case of  

retrospective escalation of price though later  

agreed being received and consequential  

differential duty being admittedly payable, it  

would result in Section 11A read with Section 11AB  

applying.

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60.  It is true that the statutory authority has  

found it to be a case of short payment.  In the  

notice issued claiming interest it is stated there  

is short levy (see page 89 Vol.II SLP paper book).  

Proceeding on the basis that it is a case of short  

levy, Section 11A read with Section 11AB is  

attracted and the interest clock ticks from the date  

as we have found namely as provided in Rule 8 read  

with Section 11AB.  If the concept of short payment  

is stretched to include all amounts which ought to  

have been paid, it may also be treated as a case of  

short payment though juridically it may be true that  

it may strictly fall under short levy.  

61.  While it may be true that interest cannot be  

demanded by way of damages or compensation and it  

is also further true that unless there is a  

substantive provision providing for payment of

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interest in a fiscal statute, interest cannot be  

demanded, we would think in the context of the Act  

and the Rules in question, under Section 11AB,  

particularly, when there is no dispute relating to  

liability to pay the differential duty and we notice  

that absence of dispute is a fair acknowledgement  

of the fact that the facts of the present cases are  

unlike the situation in MRF decision where the price  

was fixed at the time of removal, interest is payable  

as provided in Section 11AB and from the point of  

time indicated therein.  But in these cases, the  

price was variable under the escalation clause which  

was very much within the knowledge of the assessee  

and the demand for interest is sustainable.  

62.  As far as the scope of the second explanation  

of Section 11A(2)(b) is concerned, it contemplates  

payment voluntarily by the assessee.  It is without

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any notice being issued under Section 11A.  There  

is also reference to liability on the part of the  

assessee to pay interest under Section 11A(2)(b),   

not only on the amount which is paid within the  

meaning of Section 11A(2)(b) but on any short  

payment as may be determined by the excise officer.   

This only means that payment can by an assessee of  

any of the four amounts with which we are more  

concerned namely, non-levy, non-payment,  

short-levy or short-payment.  Since there is no  

notice under Section 11A and non-determination of  

the amount as such pursuant to which the amount is  

paid it may happen that there may be shortfall in  

the amount which is paid by the assessee in  

comparison to what the assessee is legally required  

to pay.  The short payment which is therefore  

referred to in the second Explanation to Section  

11A(2)(B) can only be the aforesaid short payment

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and it is not referring to the short payment of duty  

which was originally occasioned and which is the  

subject matter of Section 11A(2)(b) and Section  

11AB.  

63.  We are of the view that the reasoning of this  

Court in the order referring the cases to us (to this  

Bench) that for the purpose of Section 11AB, the  

expression “ought to have been paid” would mean the  

time when the price was agreed upon by the seller  

and the buyer does not square with our understanding  

of the clear words used in Section 11AB and as the  

rules proclaim otherwise and it provides for the  

duty to be paid for every removal of goods on or  

before the 6th day of the succeeding month.   

Interpreting the words in the manner contemplated  

by the Bench which referred the matter would result  

in doing violence to the provisions of the Act and

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the Rules which we have interpreted.  We have  

already noted that when an assessee in similar  

circumstances resorts to provisional assessment  

upon a final determination of the value  

consequently, the duty and interest dates back to  

the month “for which” the duty is determined.  Duty  

and interest is not paid with reference to the month  

in which final assessment is made.  In fact, any  

other interpretation placed on Rule 8 would not only  

be opposed to the plain meaning of the words used  

but also defeat the clear object underlining the  

provisions.  It may be true that the differential  

duty becomes crystalised only after the escalation  

is finalized under the escalation clause but it is  

not a case where escalation is to have only  

prospective operation.  It is to have retrospective  

operation admittedly.  This means the value of the  

goods which was only admittedly provisional at the

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time of clearing the goods is finally determined and  

it is on the said differential value that admittedly  

that differential duty is paid.  We would think that  

while the principle that the value of the goods at  

the time of removal is to reign supreme, in a case  

where the price is provisional and subject to  

variation and when it is varied retrospectively it  

will be the price even at the time of removal.  The  

fact that it is known, later cannot detract from the  

fact, that the later discovered price would not be  

value at the time of removal.  Most significantly,  

section 11A and section 11AB as it stood at the  

relevant time did not provide read with the rules  

any other point of time when the amount of duty could  

be said to be payable and so equally the interest.   

We would concur with the views expressed in SKF  

case(supra) and International Auto (supra).  We

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find no merit in the appeals.  The appeals will  

stand dismissed.    

…………………………………CJI.                                             

(Ranjan Gogoi)  

……………………………………………J.  

(Uday Umesh Lalit)  

………………………………………J.                                              

(K.M. Joseph)  

New Delhi;  

May 08, 2019