Supreme Court clarifies interest liability on duty for PSU: Steel Authority of India Limited vs. Commissioner of Central Excise, Bolpur (28 July 2022)

Date of the Judgment: 28 July 2022
Citation: [Not Available in Source]
Judges: B.R. Gavai, J. and Hima Kohli, J.
Can a Public Sector Undertaking (PSU) be liable to pay interest on a duty amount when the matter of the duty itself was under dispute? The Supreme Court of India recently addressed this question in a case involving Steel Authority of India Limited (SAIL) and the Commissioner of Central Excise, Bolpur. The core issue revolved around whether SAIL was liable to pay interest on a duty deposit of Rs. 15.66 crore, especially when the dispute regarding the duty was pending before the Committee of Disputes (CoD). The bench comprised of Justices B.R. Gavai and Hima Kohli, with the judgment authored by Justice B.R. Gavai.

Case Background

The case began with a Show Cause Notice issued to Steel Authority of India Limited (SAIL) on 4th August 2005, by the Commissioner of Central Excise, proposing a demand of Rs. 15.66 crore as duty for clearances made between July 2000 and December 2004. As a Public Sector Undertaking (PSU), SAIL was required to obtain clearance from the Committee of Disputes (CoD) before initiating any legal action against other PSUs or Government Departments.

Initially, on 2nd November 2006, the CoD granted permission to SAIL to pursue an appeal only on the aspect of penalty, stating that the duty dispute was revenue neutral in the CENVAT regime. Consequently, SAIL filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which set aside the penalty on 11th June 2007.

Despite the CESTAT order, the authorities continued to demand the duty amount, leading SAIL to deposit Rs. 15.66 crore under protest. Subsequently, on 11th February 2011, SAIL filed a fresh application before the CoD seeking permission to pursue the appeal regarding the duty aspect. However, the Supreme Court, in its judgment dated 17th February 2011 in Electronics Corporation of India Limited v. Union of India and Others [(2011) 3 SCC 404], held that the CoD mechanism had outlived its utility.

Following this, SAIL filed a miscellaneous application for restoration of its appeal, which was dismissed by CESTAT on 30th October 2012. The High Court of Calcutta also dismissed SAIL’s appeal against this order, leading to the current appeal before the Supreme Court.

Timeline

Course of Proceedings

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) initially allowed SAIL’s appeal on the penalty aspect but dismissed the appeal on the duty demand for lack of clearance from the Committee of Disputes (CoD). When SAIL filed a restoration application to address the duty issue after the Supreme Court’s ruling against the CoD mechanism, CESTAT dismissed it. The High Court of Calcutta upheld CESTAT’s decision, leading SAIL to appeal to the Supreme Court.

Legal Framework

The case primarily revolves around the now-defunct mechanism of the Committee of Disputes (CoD), which was a body that PSUs had to approach before taking legal action against other PSUs or government departments. The Supreme Court in Electronics Corporation of India Limited v. Union of India and Others [(2011) 3 SCC 404] had held that this mechanism had outlived its utility.

Arguments

Appellant’s Arguments (Steel Authority of India Limited):

• The primary contention of the appellant was that the question of whether they were liable to pay interest on the duty amount had not been considered by any authority.
• The CoD had only granted permission to challenge the penalty aspect, and the duty amount was deposited under protest.
• Since the CoD mechanism was abolished by the Supreme Court, the issue of interest on the duty needed to be addressed.

Respondent’s Arguments (Commissioner of Central Excise, Bolpur):

• The respondent argued that SAIL had already applied for a refund, which was rejected, and this rejection had attained finality.
• Therefore, the respondent contended that SAIL should not be allowed to reopen the issue of interest on the duty.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues. However, the core issue before the court was:
✓ Whether the appellant was liable to pay interest on the duty amount of Rs. 15.66 crore, given the peculiar circumstances of the case, particularly the abolition of the CoD mechanism and the fact that the issue of interest had not been addressed by any authority.

Treatment of the Issue by the Court

Authorities

Cases Considered:

• Electronics Corporation of India Limited v. Union of India and Others [(2011) 3 SCC 404] – Supreme Court of India: This case was crucial as it held that the mechanism of the Committee of Disputes (CoD) had outlived its utility, which directly impacted the present case.
• Oil and Natural Gas Commission and Another v. Collector of Central Excise [1995 Supp (4) SCC 541] – Supreme Court of India: This case was mentioned as part of the series of cases where directions regarding the CoD mechanism were issued.
• Oil and Natural Gas Commission v. Collector of Central Excise [(2004) 6 SCC 437] – Supreme Court of India: This case was also part of the series of cases where directions regarding the CoD mechanism were issued.
• Oil and Natural Gas Corporation Limited v. City & Industrial Development Corporation, Maharashtra Limited and Others [(2007) 7 SCC 39] – Supreme Court of India: This case was also part of the series of cases where directions regarding the CoD mechanism were issued.

Legal Provisions Considered:

No specific legal provisions were discussed in detail in the judgment. The core of the judgment revolved around the procedural aspect of the CoD mechanism and its impact on the case.

Authority Table

Judgment

Treatment of Submissions

Treatment of Authorities

The Court primarily relied on Electronics Corporation of India Limited v. Union of India and Others [(2011) 3 SCC 404] to highlight that the CoD mechanism had been abolished. This case was central to the Court’s reasoning as it established that the procedural hurdle preventing the consideration of the interest issue no longer existed. The other cases were mentioned to provide the context as to how the CoD mechanism was done away with.

The Supreme Court allowed the appeal, quashing the High Court’s order, and remitted the matter to CESTAT for consideration of the limited aspect of interest on the duty.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the issue of interest on the duty had not been considered by any authority. The abolition of the CoD mechanism by the Supreme Court in Electronics Corporation of India Limited v. Union of India and Others [(2011) 3 SCC 404], was a significant factor. The Court noted that due to this, the second application of the appellant could not be considered by the CoD. The Court emphasized the peculiar facts of the case, where the appellant had deposited the duty amount under protest and the issue of interest remained unaddressed.

Sentiment Analysis

Fact:Law Ratio

Logical Reasoning

The Court’s reasoning was based on the following points:

• The issue of interest had not been considered by any authority.
• The CoD mechanism, which had initially prevented the consideration of the duty aspect, was abolished by the Supreme Court.
• The appellant had deposited the duty amount under protest.

The Court did not consider any alternative interpretations. The decision was unanimous.

The court quoted:
“The question of interest, therefore, has not been addressed by any of the authorities.”
“In that view of the matter, we are inclined to allow the appeal.”
“The matter is remitted to the CESTAT for consideration of the limited aspect of interest on duty.”

Key Takeaways

• The Supreme Court has clarified that issues of interest on duty must be considered even if the duty itself was initially disputed under a now-defunct mechanism.
• The judgment highlights the importance of addressing all aspects of a dispute, especially when procedural hurdles are removed.
• The case sets a precedent for similar situations where the abolition of a regulatory mechanism has left certain issues unaddressed.

Directions

The Supreme Court remitted the matter to the CESTAT for consideration of the limited aspect of interest on duty.

Development of Law

The ratio decidendi of the case is that when a procedural mechanism prevents the consideration of a specific issue, and that mechanism is subsequently abolished, the issue must be addressed on its merits. This judgment clarifies that the abolition of the CoD mechanism does not preclude the consideration of interest on duty, especially when the duty was deposited under protest.

Conclusion

The Supreme Court’s decision in the case of Steel Authority of India Limited vs. Commissioner of Central Excise, Bolpur, underscores the importance of addressing all aspects of a dispute, especially when procedural hurdles are removed. By remitting the matter to CESTAT for consideration of the interest on duty, the Court ensured that the issue would be addressed on its merits. This judgment clarifies that the abolition of the CoD mechanism does not preclude the consideration of interest on duty.