INTEREST IS NOT PAYABLE WHEN DIFFERENTIAL DUTY IS PAID ON PRICE REVISION

[Mr. M. GOVINDARAJAN]

                        Sec.11AA of the Central Excise Act, 1944 ('Act' for short) as well as Sec. 11AB of the Act provides for the payment of interest on delayed payment of excise duty.  Sec.11AB of the Act provides that 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 or has paid the duty on the basis of own assessment of such duty or on the basis of duty ascertained by a Central Excise Officer before service of notice on him, shall, in addition to the duty, be liable to pay interest at such rate not below 10% of not exceeding 36% per annum as is for 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 such erroneous refund as the case may be, till the payment of such duty. 

            The proviso to Sec. 11AB provides that in such cases where the duty becomes payable consequent to issue of an order, instruction or direction by the Board under Sec. 37B of the Act 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.

            In this article an interesting issue is discussed in the matter of payment of interest.  The question to be discussed is whether interest is payable on differential duty is paid on price revision. To seek answer we may refer the case law "Commissioner of Central Excise & Customs, Vadodara - IV. Chloritech Industries" - [2009 -TMI - 32609 - GUJARAT HIGH COURT].

            The assessee had issued supplementary invoices for rate difference on the basis of escalation clause in the purchase order and such supplementary invoices were issued between 01.04.2001 to 31.3.2004. The consideration for such revision comes to the tune of Rs.1,90,89,420/- and the excise duty for the said amount to the tune of Rs.30,54,305/- has been paid voluntarily in discharge of legal obligation contained in Sec. 11A(2B) of the Act.  The Department considered that such payment is a delayed payment and for that the assessee became liable to pay interest at the prescribed rate as provided in Sec. 11AB of the Act. The Department issued show cause notice to the respondent. The Adjudicating Authority held that in the light of the provisions of Sec. 4 of the Act and more particularly the definition of the term 'transaction value' as appearing in Sec. 4(3)(d) of the Act, duty was payable for the goods sold on the price actually paid or payable and, therefore, there was delayed payment of duty making the respondent assessee liable to pay interest worked out at a sum of Rs.2,32,668/-.

            For the purpose of the readers the provisions of Sec. 4(3)(d) is reproduced as under:

Sec. 4(3)(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, shortage, 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.

            The order of the adjudicating authority has been confirmed by the Commissioner (Appeals). On appeal by the assessee before the Tribunal, the Tribunal has allowed the appeal of the assessee by holding that no interest is leviable when differential duty is paid on price variation by relying upon two decisions of the Mumbai and Bangalore Benches of the Tribunal in-

Commissioner of Central Excise, Aurangabad V. Rucha Engineering (P) Ltd., - 2006 (206) ELT 278 (Tri. Mumbai)

M/s Bharat Heavy Electricals Limited V. Commissioner of Central Excise, Bangalore- 2007-TIOL-173-CESTAT -Bang

            Aggrieved against the order of the Tribunal the Department filed appeal before the High Court, Gujarat.  The Department relied on the provisions of Sec. 4 of the Act and pointed out that the duty of excise is chargeable on any excisable goods with reference to the value of such goods, on each removal of the goods and for the purposes of working out the value on which such duty is leviable transaction value thereof is defined to mean 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 the assessee, or by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time. According to the Department the Tribunal had committed an error in law giving rise to a substantial question of law - Whether in the facts and circumstances of the case the Tribunal erred in holding that no interest as prescribed under the provisions of Sec. 11AB of the Act can be recovered when the differential duty is paid on price variation.

        The Hon'ble Court analyzed the provisions. On a plain reading of the definition of the term 'transaction value' (supra) it becomes clear that the same means the price actually paid or payable for the goods when sold. Thereafter the definition includes in addition to the amount charged as price, any amount that the buyer is liable to pay to the amount whether payable at the time of sale or at any other time, by reason of sale, or in connection with the sale.

        Thus, it becomes apparent that the value, on which the duty is chargeable, has to be the price actually paid or payable for the goods.  Even inclusive definition requires that the additional amount which the buyer is liable to pay to the assessee is by reason of or in connection with the sale, whether payable at the time of sale or at any other time. The emphasis is on the factum of the buyer being liable to make the payment.

       This becomes clear when one reads the word 'payable' and the latter part of the provision which talks of buyer being liable to pay. In other words, at the point of time when the transaction was entered into the buyer must be aware that a particular price is payable qua the transaction in question, or that he is liable to pay at a future point of time but that liability must have arisen at the point of time of transaction. This is more than abundantly clear because Sec. 4(1) of the Act, fastens charge on transaction value i.e., value placed on the goods at the time of transaction.

                        The Court held that if at the given point of time when the transaction took place the additional price was not fixed, the liability of the buyer to pay the additional amount was not known to the buyer, mere existence of an escalation clause within the meaning of the definition for the purposes of levying interest. Duty of excise would become payable even subsequently in point of time and that is the admitted position between the parties, the assessee having already discharged the liability.

                        The Court further held that Sec. 11AB of the Act itself provides that interest is to be paid on the amount short paid, from the date of the month succeeding the month in which the duty ought to have been paid under the Act. The provisions of Sec. 4 of the Act, therefore, have to be read in context of this requirement, namely, whether there was any liability to pay duty under the Act at the point of time when the transaction was entered into. If neither side to the transaction was aware as to the amount which was to be charged and which was to be paid under the consideration clause on the date when the transaction was entered into, no liability to pay interest can arise under the provisions of Sec. 11AB of the Act.

                        The Court held that it is apparent that it is not even the case of the revenue that the buyer, who purchased the goods from the assessee, was aware as to the amount that the buyer was liable to pay upon operation of escalation on the day when the transaction took place. The Court therefore held that no substantial question of law arised from the impugned order of the tribunal and dismissed the appeal of the Department.