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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 2150 OF 2012

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

VERSUS

COMMISSIONER OF CENTRAL EXCISE, RAIPUR

.....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 2562 OF 2012

CIVIL APPEAL NO. 599 OF 2013

CIVIL APPEAL NO. 600 OF 2013

A N D

CIVIL APPEAL NOS. 1522-1523 OF 2013

J U D G M E N T

A.K. SIKRI, J.

In all  these appeals, identical question of law is involved

and for the sake of brevity, we are discussing the question of law

by taking note of the facts from Civil Appeal No. 2150 of 2012.   

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2. The  appellant/assessee  herein,  which  is  a  public  sector

undertaking of the Government of India, has been selling iron and

steel  products,  that  are  manufactured  by  it,  to  the  Indian

Railways.   For this purpose,  contract  was signed between the

said two parties and the goods were being sold to the Indian

Railways at the price mutually agreed upon between them.  On

each  removal  of  these  goods  for  supply  to  the  Railways,  the

assessee  had  been  paying  the  excise  duty  as  per  the  price

disclosed by the assessee in the invoices issued at the time of

the removal of the goods.  Goods in this manner were supplied

during the period January, 2005 to  July, 2006 which period is

involved in the instant appeal.  It so happened that there was an

upward  revision  in  the  price  by  the  Railways  in  August,  2006

covering the period in question.  On that basis, assessee was

paid  the  price  difference  on  the  fixation  of  enhanced

consideration for  the goods supplied.   The assessee paid  the

differential duty of Rs.142.78 crores voluntarily in August, 2006.

According to the Revenue/respondent, since the differential duty

was paid in August, 2006 and not paid at the time of clearance of

the goods, there was delay in paying the differential  duty and,

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therefore, under Section 11AB of the Central Excise Act,  1944

(hereinafter referred to as the 'Act'), the assessee was liable to

pay  interest  on  the  differential  duty  amount  paid  by  it.   The

contention of the Revenue has been upheld by the Authorities

below  including  Custom  Excise  and  Service  Tax  Appellate

Tribunal (hereinafter referred to as the 'Tribunal').

3. The question, thus, that arises for consideration in these appeals

is as to whether interest is leviable under Section 11AB of the Act

on  the  differential  duty  amount  paid  under  supplementary

invoices due to price increase by virtue of price variation clause in

the sale contract.    Now, facts in some detail:

 The assessee is engaged in the manufacture of iron and

steel products falling under Chapter 72 and 73 of the schedule of

the  Central  Excise  Tariff  Act,  1985.   The  final  products

manufactured includes rails.  The final products manufactured by

the  assessee  are  cleared  on  payment  of  appropriate  duty  of

excise leviable thereon.  The final products are either directly sold

at  the factory  gate  or  are  transferred to  various Branch Sales

Offices from where they are sold to the customers.  The sales

either from the factory or from the BSOs are in terms of purchase

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orders received from the customers.  The assessee sold the rails

to the Indian Railways in terms of the Price Circular No. LP-06 of

2005 dated 24.02.2005 w.e.f. 01.07.2004.

In terms of the prices quoted in the purchase orders, the

assessee discharged central excise duty at the time of removal of

the rails to the Indian Railways.  Such price was the “transaction

value” of the goods in terms of Section 4 of the Act at the given

time.  In terms of the price variation clause and also in terms of

the agreement with the Indian Railways, the price circular dated

24.02.2005 effective from 01.07.2004 was revised upwards with

increase in the agreed upon price.  A revised price circular No.

LP-010/06  dated  20.07.2006  was  issued  revising  the  agreed

upon price.

In  terms  of  the  revised  price  circular  the  assessee

discharged  differential  duty  of  Rs.142,78,88,172/-  on  the  rails

cleared during the period from January, 2005 to July, 2006.  The

differential duty was paid in August, 2006 under intimation to the

Departmental Authorities.    

4. In the above background, on a scrutiny of ER-1 return filed by the

assessee for the month of August,  2006, a show cause notice

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dated 01.06.2007 was issued to the assessee contending that in

respect of the differential duty of Rs.142.78 crores paid in August,

2006,  the  assessee  are  required  to  pay  an  interest  of

Rs.15,51,81,231/-  under  Section 11AB of  the  Act.   The notice

alleged that since the price was not correctly determined at the

time of removal of goods there was short payment of duty hence

the assessee is liable to pay interest.  The notice also alleges that

since the price was not final the duty should be treated as paid on

the  provisional  price  and  in  terms of  Rule  7(4)  of  the  Central

Excise Rules interest under Section 11AB is payable.  The notice

also  relied  on  circular  dated  28.07.2003  to  allege  that  the

assessee is required to pay interest.  The notice also proposed to

impose penalty under Rule 25 for contravention of Rules 7 and 8

of the Rules.   

5. The assessee filed detailed reply dated 17.10.2007 challenging

the  allegations  contained  in  the  show  cause  ntoice  and

contending that no interest is payable on the differential duty paid

on account of price variation.

6. The Commissioner of Central Excise, Raipur passed order dated

31.10.2007  confirming  the  amount  of  interest  proposed  in  the

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show cause notice and also imposing penalty of Rs.2,00,000/-.

Against the order dated 31.10.2007 passed by the Commissioner

of  Central  Excise,  Raipur, assessee filed an appeal before the

Tribunal.   The Tribunal  has passed the impugned order  dated

13.08.2010 and dismissed the appeal.  This order is challenged

by way of instant appeal.

7. It becomes manifest from the aforesaid facts that the assessee

had discharged the excise duty on the goods cleared by it on the

basis of invoices raised indicating the value of these goods and

as on the date of  the clearance of  these goods.  It  cannot be

disputed  that  the  price  declared  in  the  said  invoice  was  the

transaction value of the goods in terms of Section 4 of the Act

inasmuch as that was the price fixed between the parties at which

the goods were to be supplied at the time and place of removal.

The occasion for differential duty arose at a later date due to price

variation  clause  in  the  contract  for  sale.   The  moment  the

assessee received the enhanced price due to price escalation, it

paid differential duty on its own immediately on receipt of the said

price.   

8. It  is  in  this  backdrop  it  is  to  be  examined  as  to  whether  the

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difference in price, as per the decision taken by the Railways on a

later  date  i.e.  much  after  the  date  on  which  the  goods  were

cleared, can be treated as price as on the date when the goods

were actually removed and, therefore, it is to construed that the

duty initially paid was 'short paid' to bring this event within the fold

of Section 11AB of the Act.  As per the assessee, provisions of

Section 11AB of the Act would not be attracted at all inasmuch as,

by no stretch of imagination, it can be treated that on the date of

removal of the goods when the duty was paid as per the price

fixed  at  that  time,  it  is  now to  be  treated  as  'short  paid'  only

because of the occurrence of an event at a later date which could

not  be  visualised  or  taken  into  consideration  at  the  time  of

removal of these goods.   

9. For  proper  understanding  of  the  matter,  we  may  reproduce

provisions of Section 11AB of the Act at this stage, which reads

as under:

“(1)   Where  any  duty  of  excise  has  not  been levied  or  paid  or  has  been  short-levied  or short-paid  or  erroneously refunded,  the person who  is  liable  to  pay  the  duty  as  determined under sub-section (2), or has paid the duty under sub-section  (2B),  of  Section  11A,  shall,  in addition to the duty, be liable to pay interest at such rate  not  below eighteen percent  and not exceeding thirty-six percent per annum, as is for

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the time being fixed by the Central Government, by  notification in  the Official  Gazette,  from the first date of the month succeeding the month in which the duty ought to have been paid under this  Act,  or  from  the  date  of  such  erroneous refund,  as  the  case  may  be,  but  for  the provisions  contained  in  sub-section  (2),  or sub-section (2B), of Section 11A till  the date of payment of such duty:

Provided  that  in  such  cases  where  the duty becomes payable consequent to issue of an order, instruction or direction by the Board under Section 37B, and such amount of duty payable is voluntarily paid in full, without reserving any right to  appeal  against  such  payment  at  any subsequent stage, within forty-five days from the date  of  issue  of  such  order,  instruction  or direction, as the case may be, no interest shall be payable and in other cases the interest shall be  payable  on  the  whole  of  the  amount, including the amount already paid.

(2) The provisions of sub-section (1) shall not apply  to  cases  where  the  duty  had  become payable or ought to have been paid before the date on  which  the Finance Bill,  2001 receives the assent of the President.

Explanation 1. - Where the duty determined to be  payable  is  reduced  by  the  Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, the interest shall be payable on such reduced amount of duty.

Explanation 2. - Where the duty determined to be payable is increased or further increased by the  Commissioner  (Appeals),  the  Appellate Tribunal or, as the case may be, the Court, the interest  shall  be payable on such increased or further increased amount of duty.”

10. A bare reading of the aforesaid provision reflects that in order to

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attract the same, following requirements need to be fulfilled:

(a) Non-levy or non-payment of duty.

(b) Short levy or short payment of duty.

(c) erroneous refund.

(d) duty determined under Section 11A(2).

(e) Section 11A(2) requiring Notice issued under Section 11A.

(f) duty payment under Section 11A(2B).

(g) interest  is  payable  on  such  reduced  or  increased  duty   

determined to be payable by Commissioner (Appeals) or   

Appellate Tribunal etc.

11. Before proceeding further, we would like to point out that we are

not treading on a virgin territory, inasmuch as the provisions of

Section 11AB of the Act  have already been interpreted by this

Court  in  two  judgments  under  almost  similar  circumstances.

These are:

(a)  CCE v. SKF India Ltd.1

(b)  CCE v. International Auto Limited.2

12. In  SKF  India  Ltd.  case,  the  assessee  was  engaged  in  the

manufacture and sale of ball bearings and textile machine parts.

1 (2009) 13 SCC 461 2 (2010) 2 SCC 672

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It sold goods manufactured by it on certain prices on payment of

excise duty leviable on the price on which the goods were sold.

Later on, there was a revision of prices with retrospective effect.

Following  the  revision  the  assessee  raised  supplementary

invoices on its buyers and also paid the differential duty on the

goods sold earlier.  The Revenue took the view that the assessee

was liable to pay interest on differential duty.  This factual position

would reflect that it was almost same that prevails in the present

appeals.  Though, the demand made in Order-in-Original was set

aside  by  the  Commissioner  (Appeals)  and  the  order  of  the

Commissioner (Appeals) was upheld by the CESTAT holding that

no interest was chargeable where there was time gap between

the payment of differential duty and issuance of supplementary

invoices  to  the  customers  on  the  basis  of  upward  revision  of

prices in respect of the goods sold earlier.  The said view of the

Tribunal  was  reversed  by  this  Court  holding  that  interest  was

payable under Section 11AB of the Act.   After  reproducing the

provisions of Section 11AB, the Court in the first instance pointed

out that the aforesaid provision was not happily worded and made

following remarks in this behalf:

“9.  If the object of the law is to state clearly and

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unambiguously  the  obligations  of  the  person whom the law addresses and to spell out plainly and without any confusion the consequences of failure to discharge the obligations cast by the law then the four sections of  the Act fall  miles short of the desired objective. Even as originally cast  the  provisions were far  from very  happily framed and worded.  Subjected to amendments from  time  to  time  those  provisions  have  now become so complicated that in order to discern their  meaning  it  becomes  necessary  to  read them back and forth several times.

10. We see no reason why the two periods for which interest is leviable may not be put together and  dealt  with  in  one  consolidated  provision instead of being split up in Sections 11-AA and 11-AB.  Also, there is much scope to reorganise all the different sub-sections of Section 11-A and to present the scheme of that section in a more coherent and readable form.  Be that as it may. In the case in hand we have to deal with the law as it stands now.”

13. Thereafter, the Court  contrasted the provisions of  Section 11A

with Section 11AB and some other provisions.  It also took note of

the judgment of High Court of Bombay in  CCE v. Rucha Engg.

(P) Ltd.3 wherein the Bombay High Court had held that Section

11AB of the Act is not applicable in such a situation.  The Court,

however, rejected the aforesaid view of the Bombay High Court.

We would like to reproduce the relevant discussion touching the

aforesaid aspect, as contained in the judgment:

“11. Section 11-A puts the cases of non-levy or short-levy,  non-payment  or  short-payment  or

3 First Appeal No. 42 of 2007 decided on 03.04.2007

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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 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.

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14. What  is  stated  in  Explanation  2  to sub-section (2-B) is reiterated in Section 11-AB that  states  where  any  duty  of  excise  has  not been levied or paid or has been short-levied or short-paid or erroneously refunded,  the person who has paid the duty under sub-section (2-B) of Section 11-A,  shall,  in  addition to the duty, be liable to pay interest…. It is thus to be seen that unlike penalty that is attracted to the category of cases  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”,  under  the  scheme  of  the  four  Sections (11-A,  11-AA,  11-AB  and  11-AC)  interest  is leviable on delayed or deferred payment of duty for  whatever  reasons.  The  payment  of differential duty by the assessee at the time of issuance  of  supplementary  invoices  to  the customers demanding the balance of the revised prices  clearly  falls  under  the  provision  of sub-section (2-B) of Section 11-A of the Act.

15. The  Bombay  High  Court,  Aurangabad Bench, in its decision in CCE v. Rucha Engg. (P) Ltd.,  (First  Appeal  No.  42 of  2007 decided on 3-4-2007) that was relied upon by the Tribunal for  dismissing  the  Revenue’s  appeal  took  the view  that  there  would  be  no  application  of Section  11-A(2-B)  or  Section  11-AB  where differential  duty  was  paid  by  the  assessee  as soon  as  it  came  to  learn  about  the  upward revision of prices of goods sold earlier.

16.  In Rucha Engg. the High Court observed as follows: “It is evident that Section 11-AB comes into play if  the  duty  paid/levied  is  short.  Both,  the Commissioner  (Appeals)  and  CESTAT  have observed that the assessee paid the duty on its own accord immediately when the revised rates became  known  to  them from their  customers.

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The  differential  duty  was  due  at  that  time  i.e. when  the  revised  rates  applicable  with retrospective effect were learnt by the assessee, which  was  much  after  the  clearance  of  the goods  and,  therefore,  question  of  payment  of interest does not arise as the duty was paid as soon as it was learnt that it was payable. Finding that provisions of Section 11-A(2) and 11-A(2-B) were not applicable as the situation occurred in the  instant  case  was  quite  different,  Section 11-AB(1) was not at all applicable, and therefore, the assessee was not required to pay interest.” It  further held that a case of this nature would not fall in the category where duty of excise was not paid or short-paid.

17.   We are  unable  to  subscribe  to  the  view taken by the High Court in  Rucha Engg. 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 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.”

14. Fact  situation  in  International  Auto  Limited  was  also  almost

similar.   In  that  case,  the  assessee,  viz.,  International  Auto

Limited had supplied auto parts to its customers (manufacturers

of motor vehicles) who determined the prices of auto parts having

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regard  to  the  cost  of  raw  material,  manufacturing  cost,  profit

margin, etc. and placed orders with the assessee.  Since price

difference arose between the price on the date of removal and

the enhanced price at which the goods stood ultimately sold, the

Department issued show cause notice proposing to levy interest

on  the  differential  duty,  paid  by  the  assessee,  under  Section

11-AB of the Act.  The assessee took up the defence that prices

indicated  in  the  purchase  order  were  final  and  not  liable  to

change at the time of removal of the goods and, thus, it was not

the case of 'short levy' on which interest could be charged.  After

extensively  quoting  from  the  judgment  of  SKF  India  Ltd. and

following  the  same,  aforesaid  contention  of  the  assessee was

repelled.  In addition, the judgment also contained some further

discussion on Section 11AB of the Act which needs to be taken

note of.  It runs as under:

“6. Section 11-A of the Act deals with recovery of duty  not  levied  or  not  paid  or  short-levied  or short-paid.  The  said  section,  which  stood inserted  by  Act  25  of  1978,  underwent  a  sea change when Parliament inserted major changes in that section vide Act 14 of 2001 (with effect from 11-5-2001) and Act 32 of 2003 (with effect from 14-5-2003). It needs to be mentioned that simultaneously  Act  14  of  2001  also  made changes to Section 11-AB of the Act.

7.  In SKF India Ltd., (2009) 13 SCC 461, it has

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been, inter alia, held, as can be seen from the abovequoted paragraphs, that sub-section (2-B) of  Section  11-A provides  that  the  assessee in default  may make payment  of  the unpaid duty on  the  basis  of  his  own  ascertainment or  as ascertained by a Central Excise Officer and, in that event, such assessee in default  would not be served with the demand notice under Section 11-A(1) of the Act. However, Explanation 2 to the sub-section  makes  it  clear  that  such  payment would not  be  exempt  from interest  chargeable under Section 11-AB of the Act. What is stated in Explanation 2 to sub-section (2-B) is reiterated in Section  11-AB  of  the  Act,  which  deals  with interest on delayed payment of duty.

8. From  the  scheme  of  Section  11-A(2-B) and Section 11-AB of the Act, it becomes clear that interest is levied for loss of revenue on any count.  In  the  present  case,  one  fact  remains undisputed, namely, accrual of price differential. What does differential  price signify? It  signifies that value, which is the function of the price, on the date of removal/clearance of the goods was not correct. That, it was understated. Therefore, the price indicated by the supplementary invoice is directly relatable to the value of the goods on the  date  of  clearance,  hence,  enhanced  duty. This enhanced duty is on the corrected value of the  goods  on  the  date  of  removal.  When  the differential  duty  is  paid  after  the  date  of clearance,  it  indicates  short-payment/short-levy on the date of removal, hence, interest which is for  loss  of  revenue,  becomes  leviable  under Section 11-AB of the Act.

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. 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

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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 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.

10. In  the  present  case,  we  are  concerned with the imposition of  interest  which, as stated above,  is  charged  to  compensate  the Department  for  loss  of  revenue.  Be  that  as  it may, as  stated  above,  the  scheme of  Section 11-A of the Act has since undergone substantial change and, in the circumstances, in our view, the judgment of this Court in  MRF Ltd. has no application to the facts of this case. In our view, the judgment of this Court in  SKF India Ltd. is squarely applicable to the facts of this case.”

15. Mr. Lakshmikumaran, who appeared for the assessees in these

appeals, insisted on a different course of action.  He adopted two

pronged  strategy.   His  first  endeavour  was  to  show  that  the

judgments in the cases of  SKF  and  International Auto were not

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applicable  as  the  aforesaid  cases  were  distinguishable.   His

alternate submission was that these judgments do not correctly

interpret the provisions of Section 11AB of the Act and, therefore,

matter required a fresh look by a Larger Bench.

16. It is difficult to accept the first submission.  As already pointed out

above, the factual scenario in which the aforesaid two cases were

decided were similar, nay, almost identical.  When this Court on

the basis of  same type of  events interpreted the provisions of

Section 11AB of the Act in a particular manner and held, in no

certain  terms,  that  interest  was  payable,  it  is  difficult  to

countenance the argument of the assessee that these cases are

distinguishable  on  facts.   Therefore,  we  advert  to  the  second

plank of Mr. Lakshmikumaran's submissions which was argued

with all vehemence, covering the entire length and breadth of the

statutory provisions with relevant case laws.

17. 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

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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 second category and, therefore, we are

not  indulging in  any discussion pertaining to the first  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 of the Act, 1944 but

before 2010.

18. 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.   

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19. Starting from the basics, it is axiomatic that interest under Section

11AB can be levied/charged where any duty of excise has not

been levied or paid or has been short levied or short paid. In such

an event, interest is liable to be paid 'from the first date of the

month succeeding the month in  which the  duty  ought  to  have

been paid'.  Section 4(1)(a) of the Act provides that the value of

the goods shall  be the price  'actually  paid  or  payable'  for  the

goods.  This means the price which has been 'paid' or 'agreed to

be paid' by the buyer of the goods.  We find force in the argument

of the assessee that the expression 'ought to have been paid' in

Section 11AB has to be understood in this light.  Thus, for the

purposes of Section 11AB, the expression 'ought to have been

paid' would mean the time when the price is agreed upon by the

seller and the buyer.  In other words,  the right  of the seller to

receive the revised price crystallises only when the buyer agrees

to sanctions the same, and only at that time can liability to pay

duty, if  at all,  on the revised price arise.   Both parties are not

aware of the final price at the time when the goods are removed.

In  the  context  of  price  revision  subsequent  to  clearance,  duty

'ought to be paid' only after the sanctioning of the revised priced

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by the buyer.  The differential duty on account of price revision is

paid in the month when the revised price is agreed between the

seller (assessee) and the buyer and it ought to have been paid

only at that time and not before.   

20. One has also to keep in mind the difference between 'what should

be  the  quantum  of  duty  to  be  paid'  and  'when  such  duty  is

payable'.  In the cases price revision, the quantum of duty would

be on the escalated price but the time for payment of differential

duty is when the parties agree for the escalation in prices. On that

reckoning, it would follow that interest clock for differential duty

will start ticking from the date differential duty is due, i.e., the date

of agreement of escalated prices and not before.  This concept

gets clarified with the latest amendment in 2015 to Section 11A

with regard to the 'relevant date' for payment of interest.   

21. We  have  already  taken  note  of  judgments  in  SKF  and

International Auto including the reasons which have been given in

support of the view that interest would be payable.  At the outset,

we may mention that the Bench did not consider the effect of the

expression 'ought to have been paid' occurring in Section 11AB of

the Act.   It  is  undeniable that  under  Section 4 of  the Act,  the

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excise duty is to be paid on the 'transaction value' and such a

transaction value has to be seen at the time of clearance of the

goods.   Indubitably, when the goods  were  cleared,  the excise

duty was paid taking into consideration the price that was actually

charged  and  was  reflected  in  the  invoices  raised  for  the  said

purpose.  The Department cannot plead that as on that date, this

was  not  the  price  charged.   No  doubt,  when  the  differential

payment is made at a later date, further amount towards excise

duty  becomes payable  as a  result  of  said  differential  in  price.

Further, such an event took place at a subsequent date.  As on

the date when the goods were cleared, there was no certainty

that  there  would  be  price  escalation  and  it  was  beyond

comprehension to ascertain the exactitude of such an escalation.

It would be impossible to expect the assessee to pay the excise

duty, at the time of clearance of the goods, on the basis of price

escalation that took place at a later date in future.  Therefore, as

on the date of clearance when excise duty was paid, it could not

be treated as 'short paid' on the said date.  As a consequence

when the principal amount, namely, the excise duty itself was not

payable (i.e. on the differential) on the date of clearance of the

goods, there cannot be any question of law to pay interest.   

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22. No doubt, on receipt of differential price, when the buyer agreed

to  escalation  in  the  price,  further  excise  duty  also  become

payable and on that reckoning one can say that the excise duty

originally  paid  became 'short  paid'.   However, that  would  only

attract  payment  on differential  excise duty and not the interest

thereon.   

23. The two judgments in  SKF India Ltd.  and International Auto  are

by the same Bench.  International  Auto  follows  SKF India Ltd.

The primary factor by which the Bench was influenced was that

there is a loss of revenue to the Government and, therefore, the

Government  should  compensate  for  that.   It  proceeds  on  the

basis  that  the price  which was originally  stated at  the time of

removal of the goods was 'understated' (para 8 of  International

Auto).  However, value of the goods for the purpose of duty is 'at

the  time  of  removal',  as  emphasised  above  which  remains

fundamental principle from the inception of the Central Excise Act

originally  enacted  in  1944  and  remains  valid  till  date.   It  is,

therefore, difficult to accept that the price was 'understated' on the

date of removal of those goods.

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24. We further find that the Bench distinguished earlier three member

Bench judgment in the case of  MRF Ltd. v.  Commissioner of

Central Excise, Madras4 on the purported ground that there was

'sea  change'  in  Section  11A of  the  Act  (which  was  originally

inserted  by  Act  25  of  1978)  when  Parliament  inserted  major

changes in that Section vide Act 14 of 2001 w.e.f. 11.05.2001, Act

32 of 2003 w.e.f. 14.05.2003 and Act 14 of 2001 whereby Section

11AB of  the Act  was also amended.   However, we are of  the

opinion that amendments made to Section 11A in 2001 and 2003

have nothing to do with the valuation of the goods based on 'the

price at the time of removal'.  MRF was a case where a particular

price was charged by the said assessee from the buyer on the

date  of  removal  and  excise  duty  paid  thereupon.   However,

thereafter  this  price  was  reduced  on  the  direction  of  the

Government.  On that basis, assessee laid its claim for refund of

excise duty on differential between price on the date of removal

and  the  reduced  price  at  which  the  buyers  were  sold  on  the

direction of  the Government.   This claim of  the assessee was

rejected  and  the  order  upheld  by  this  Court  as  well  with  the

following discussion:

4 (1997) 5 SCC 104

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“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  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 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.”

We, thus, are of the view that principle laid down in  MRF

Ltd. would continue to prevail.

25. Mr. Lakshmikumaran argued, and we find force in this argument,

that  observations  of  the  Bench  in  the  aforesaid  case  that  the

imposition of interest is to compensate the Department for loss of

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revenue is  contrary  to  the Constitution Bench judgment  in  the

case of  J.K. Synthetics Limited v. Commercial Taxes Officer5

wherein the argument that interest was compensatory in nature

was specifically rejected.  The Constitution Bench considered in

detail the correctness of earlier three member Bench judgment in

the  case  of  Associated  Cement  Company  Limited  v.

Commercial  Tax  Officer,  Kota  and  Others6 wherein  majority

view  was  that  interest  claimed  on  unpaid  tax  dues  could  be

charged  as  it  was  compensatory  in  character  and  not  penal.

Bhagwati, J. had, however, dissented giving various reasons, one

of which was that tax which has yet to be ascertained through the

process  of  ascertainment  could  not  be treated  as  tax  payable

from  the  date  of  submission  of  the  return  and,  therefore,  no

interest could be charged from the date of filing of the return upto

the date of assessment.  This view of Bhagwati, J. was accepted

after detailed discussion with the following conclusion:

“...Our  attention  was,  however,  drawn  by  Mr. Sen to two cases.  Even in those cases,  CIT v. M.  Chandra  Sekhar,  (1985)  1  SCC  283  and Central  Provinces  Manganese Ore  Co.  Ltd.  v. CIT,  (1986)  3  SCC  461,  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

5 (1994) 4 SCC 276 6 (1981) 4 SCC 578

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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 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, 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.”

26. We are conscious of the sentiments expressed by seven Judges

Bench  of  this  Court  in  Keshav  Mills  Company  Limited  v.

Commissioner  of  Income  Tax,  Bombay7 wherein  the  Court

sounded caution and stated the restraint that has to be exercised

while dealing with the question as to whether earlier decisions of

this  Court  should  be  reconsidered  and  revised.   The  Court

observed that merely because two views are possible should not

be a reason to review the earlier judgment as it was necessary to

maintain consistency and depict  certainty in law.  At  the same

time, Court made the following remarks:

“...That  is  not  to  say  that  if  on  a  subsequent

7 (1965) 2 SCR 908

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occasion,  the  Court  is   satisfied     that   its earlier decision  was clearly erroneous, it should not  hesitate  to correct  the  error;  but  before  a previous  decision  is pronounced to be plainly erroneous, the Court must be satisfied  with  a fair amount of unanimity amongst  its  members that a revision of the said view is fully justified.  It is not  possible  or  desirable, and in any case  it would   be  inexpedient   to  lay  down  any principles which should  govern the  approach of the  Court  in  dealing  with  the   question   of reviewing  and  revising its earlier  decisions.   It would  always   depend  upon  several  relevant considerations-What   is  the   nature  of  the infirmity or error on which a plea for  a review and revision of the earlier view is based?  On the earlier occasion, did some patent aspects of question remain unnoticed,  or was the attention of the Court  not  drawn  to any  relevant and material  statutory  provision,  or   was   any previous  decision  of this Court bearing on the point   not  noticed? Is  the  Court  hearing  such plea   fairly   unanimous  that  there  is  such  an error  in  the earlier  view?  What  would  be  the impact of the error on the general administration of law  or  on  public good? Has  the  earlier decision   been  followed   on  subsequent occasions either by this Court  or  by the  High Courts?  And, would the reversal of  the  earlier decision lead to public inconvenience, hardship or  mischief?   These  and  other  relevant considerations must be carefully drawn in mind whenever this Court is called upon to exercise its  jurisdiction  to  review  and  revise  its  earlier decisions.   These considerations becomes still more   significant  when  the  earlier  decision happens to be a unanimous decision of a Bench of five learned Judges of this Court.”

27. We have kept in mind the aforesaid consideration and feel that

decision in  SKF and  Auto International  require a re-look for the

reasons given by us above.  We, thus, direct the Registry to place

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the  matter  before  the  Hon'ble  Chief  Justice  of  India  for

constituting a Larger Bench to go into the issue involved in this

case  which  is  of  seminal  importance  having  far  reaching

ramifications.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; DECEMBER 07, 2015.

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