Supreme Court Upholds Interest on Differential Excise Duty: Steel Authority of India Ltd. vs. Commissioner of Central Excise, Raipur (2019)

Introduction

Date of the Judgment: May 8, 2019

Citation: 2019 INSC 449

Judges: Ranjan Gogoi, CJI, Uday Umesh Lalit, J., K.M. Joseph, J.

Can interest be charged on additional excise duty that arises from a retrospective price increase? The Supreme Court of India addressed this question in a case involving the Steel Authority of India (SAIL). The core issue was whether SAIL was liable to pay interest on the differential excise duty that became payable due to a retrospective price revision under an escalation clause. This judgment clarifies the application of Section 11AB of the Central Excise Act, 1944, concerning interest on delayed duty payments.

Case Background

The Steel Authority of India (SAIL), a manufacturer, sold various products, including rails, to Indian Railways. From January 1, 2005, to July 2006, SAIL cleared these goods after paying excise duty based on their circular dated April 24, 2005. Subsequently, on July 20, 2006, SAIL revised its prices retrospectively, leading to an additional excise duty of ₹142 crores, which SAIL deposited in August 2006. The excise department then sought interest on this differential duty under Section 11AB of the Central Excise Act, 1944, calculated from the original dates of removal of the goods. SAIL objected, arguing that interest was not applicable as the original duty was paid based on the prices at the time of removal.

Timeline

Course of Proceedings

The excise department demanded interest under Section 11AB of the Central Excise Act, 1944. SAIL contested this demand, but the authority ruled against them, holding SAIL liable for interest on the differential duty. SAIL appealed to the Tribunal, which upheld the authority’s decision, relying on the Supreme Court’s judgment in the SKF India Ltd. case. Subsequently, a two-judge bench of the Supreme Court, hearing the matter, doubted the correctness of the SKF India Ltd. and International Auto Ltd. judgments and referred the case to a larger bench, leading to the present judgment.

Legal Framework

The core legal provisions in this case include:

• Section 11AB of the Central Excise Act, 1944: This section deals with interest on delayed payment of duty. It states that if any duty has not been levied or paid, or has been short-levied or short-paid, the person liable to pay the duty must also pay interest from the first day of the month succeeding the month in which the duty ought to have been paid.

“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 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 no tification 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 provi sions contained in sub -section (2) of section 11A, till the date of payment of such duty.”

• Section 4 of the Central Excise Act, 1944: This section defines how excisable goods are valued for duty purposes. It specifies that the value should be the transaction value, which is the price actually paid or payable for the goods at the time and place of removal.

“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 go ods 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, – (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, c ommission 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. ”

• Rule 4 of the Central Excise Rules, 2002: This rule mandates that duty must be paid on excisable goods before they are removed from the factory or warehouse.
• Rule 5 of the Central Excise Rules, 2002: This rule specifies that the rate of duty applicable is the rate in force on the date the goods are removed from the factory or warehouse.
• Rule 6 of the Central Excise Rules, 2002: This rule mandates that the assessee shall himself assess the duty payable on any excisable goods.
• Rule 7 of the Central Excise Rules, 2002: This rule allows for provisional assessment when the assessee cannot determine the value or rate of duty. It also specifies that interest is payable on any amount due after final assessment, from the month following the determination of the amount.
• Rule 8 of the Central Excise Rules, 2002: This rule outlines the manner of payment, stating that duty on goods removed during a month must be paid by the 5th of the following month (or 31st of March for goods removed in March).

Arguments

Appellant (SAIL)’s Arguments:

• SAIL contended that the differential duty was not a case of short payment, as the duty was paid based on the price at the time of removal.
• They argued that the price at the time of removal was the basis for duty calculation, and the subsequent revision should not attract interest.
• SAIL maintained that they were not liable to resort to provisional assessment under Rule 7 of the Central Excise Rules, 2002.
• SAIL relied on the principle that the value at the time of removal of the goods alone would govern the situation.
• SAIL contended that the interest clock should start ticking only from the date the differential duty is due, not before.

Respondent (Commissioner of Central Excise)’s Arguments:

• The department argued that the original price declared by SAIL was provisional.
• They contended that SAIL should have invoked Rule 7 of the Central Excise Rules, 2002, for provisional assessment.
• The department maintained that the differential duty was a case of short payment and therefore, interest was leviable under Section 11AB of the Central Excise Act, 1944.
• They relied on the judgments in SKF India Ltd. and International Auto Ltd. cases.

Sub-Submissions Categorized by Main Submissions:

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the decisions in SKF India Ltd. and International Auto Ltd. lay down the correct law, considering the decision in MRF Ltd. case.
2. The effect of the judgment in JK Synthetics v. State of Rajasthan and other judgments regarding 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 Tax Act on the liability under Section 11AB of the Act.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court specifically considered the following authorities:

• The Court approved the rulings in CCE v. SKF India Ltd. [2009 (13) SCC 461] and CCE v. International Auto Ltd. [2010 (2) SCC 672]* and held that they laid down the correct law.
• The Court distinguished the ruling in MRF Ltd. v. Collector of Central Excise, Madras [1997 (5) SCC 104]* stating that it was based on fixed prices and not on provisional prices subject to revision.
• The Court distinguished the ruling in JK Synthetics v. State of Rajasthan* and other judgments relating to interest under fiscal statutes, stating that the provisions of the Central Excise Act and Rules are a separate code.
• The Court held that the decision in Associated Cement Co. case [(1981) 4 SCC 578]* stood overruled by JK Synthetics*.
• The Court referred to Purolator India Limited Vs. Commissioner of Central Excise [2015 (10) SCC 715]* on the point of determination of price at the time of removal.
• The Court referred to India Carbon Ltd. & Ors. vs. State of Assam [1997 (6) SCC 479]* on the point of interest under the Central Sales Tax Act.
• The Court distinguished the rulings in E.D. Sassoon & Co. Ltd. v. CIT [AIR 1954 SC 470]*, Commissioner of Income Tax, Madras v. A. Gajapathy Naidu, Madras [AIR 1964 SC 1653]*, Vikrant Tyres Ltd. v. First Income Tax Officer, Mysore [2001(3) SCC 76]*, and P.G. & W. Sawoo (P) Ltd. v. CIT & Ors. [2017(13) SCC 284]* stating that the impact of taxing income under the Income Tax Act would not be apposite for considering the question of interest under Section 11AB of the Central Excise Act.
• The Court referred to E.I.D. Parry (India) Ltd. v. CCT [2005 (4) SCC 779]* on the point of interest under the Tamil Nadu Sales Tax Act.
• The Court referred to N.B. Sanjana, Assistant Collector of Central Excise, Bombay & Ors. v. The Elphinstone Spinning and Weaving Mills Co. Ltd. [1978 E.L.T. (J 399)]* on the interpretation of “levy” and “paid”.
• The Court referred to Rainbow Industries (P) Ltd. v. CCE [(1994)6 SCC 563]*, Balarpur Industries Ltd. v. Assistant Collector of Customs and Central Excise & Ors. [(1995) Supplement 3 SCC 429]*, Collector of Central Excise, Baroda v. Cotspun Ltd. [(1999) 7 SCC 633]*, M/s. Eastland Combines, Coimbatore v. Collector of Central Excise, Coimbatore [AIR 2003 SC 843]*, and ITW Signod India Limited vs. Collector of Central Excise [(2004) 3 SCC 48]* on the point of reopening of classification list.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by several factors:

• Statutory Interpretation: The Court emphasized the plain language of Section 11AB of the Central Excise Act, 1944, and Rule 8 of the Central Excise Rules, 2002, stating that the interest clock starts ticking from the date when the duty ought to have been paid under the Act and Rules.
• Provisional Assessment: The Court highlighted the importance of Rule 7, which allows for provisional assessment when the value of goods is uncertain. The court noted that SAIL should have resorted to this provision.
• Retrospective Price Revision: The Court recognized that the retrospective price revision meant that the value of the goods at the time of removal was actually higher than what was initially declared.
• Self-Assessment: The Court noted that the scheme of the Act and Rules is based on self-assessment, and the assessee is responsible for determining the correct value and duty.
• Fairness and Equality: The Court aimed to interpret the law in a manner that is fair and equal to all similarly situated assessees.
• Scheme of the Act: The Court held that the Central Excise Act and Rules are a separate code, and the principles of the Income Tax Act are not applicable.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The Court rejected the argument that the interest clock should start from the date of the price agreement. The Court reasoned that the duty was always due on the higher value from the date of removal, and the retrospective revision only clarified the correct value.

The Court considered the argument that the expression “ought to have been paid” in Section 11AB should be interpreted as the date when the price was agreed upon by the seller and the buyer. However, the Court rejected this interpretation, stating that it does not align with the clear words used in Section 11AB and the rules. The Court emphasized that Rule 8 specifies that the duty on goods removed during a month is to be paid by the 5th day of the following month (or 31st of March for goods removed in March). Therefore, the expression “ought to have been paid” should be interpreted in accordance with Rule 8.

The Court also addressed the argument that the differential duty became crystallized only after the escalation was finalized. However, the Court noted that the escalation had retrospective effect, meaning that the value of the goods at the time of removal was actually higher than what was initially declared. Therefore, the later discovered price is considered the value at the time of removal.

The court held that the differential duty was a case of short payment or short levy, and therefore, interest was payable under Section 11AB from the date when the duty ought to have been paid as per the rules.

The Court quoted from the judgment:

• “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.”
• “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 wit h 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.”
• “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 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 case s are unlike the situation in MRF decision where the price was fixed at the time of removal , interest is payable as provided in Section 11A B and from the point of time indicated therein.”

Key Takeaways

• Interest on differential excise duty resulting from retrospective price revisions is payable from the original date when the duty ought to have been paid, as per the Central Excise Rules, 2002.
• Assessees must resort to provisional assessment under Rule 7 of the Central Excise Rules, 2002, when the value of goods is uncertain or subject to revision.
• The value of goods at the time of removal is paramount and any retrospective price revision will be considered in determining the correct duty.
• The principles of the Income Tax Act regarding accrual of income are not applicable when determining the liability for interest under Section 11AB of the Central Excise Act, 1944.
• The Supreme Court upheld the decisions in SKF India Ltd. and International Auto Ltd., reinforcing that interest is payable on differential excise duty arising from retrospective price revisions.
• This judgment reinforces the importance of self-assessment and timely payment of excise duty.
• Businesses must ensure proper accounting and compliance with the Central Excise Act and Rules to avoid interest liabilities.