Interest is liable to pay on differential duty payable w.r.t price escalation: SC (LB)

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SC Larger Bench (LB) holds that the assessee liable to pay interest u/s 11AB of the Central Excise Act, 1944 (“the Act”) on the differential excise duty that become payable on the basis of price escalation clause and further, explains that, in a case of retrospective escalation of price and consequential differential duty admittedly payable, it would result in Section 11A read with Section 11AB of the Act.

Facts:

M/s. Steel Authority of India ltd. (“the assessee”) is a manufacturer of various products including rail and sold the same to the Indian Railways. The goods were cleared on the payment of excise duty on the payment of price which was fixed based. Subsequently, the prices were enhanced by way of price circular dated July 20, 2006, with retrospective effect.

The authority found that assessee was liable to pay interest under Section 11AB of the Act calculated based on the date of removal of the goods during the period from January, 2005 to July, 2006.

Issue Involved:

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 Act?

Assessee’s Interpretation of Law:

The assessee contended that this is not a case of short payment of duty as the price at the time of actual removal of goods formed the basis for which duty was duly paid. Assessee further contended that, it was not liable to resort to provisional assessment under Rule 7 of Central Excise Rules.

Held:

The Hon’ble Supreme Court Large Bench vide its Civil Appeal No. 2150 of 2012 in the case of M/s. Steel Authority of India Ltd. vs. Commissioner of Central Excise Raipur dated May 8, 2019 observe that in present case, at the time goods were removed the price was not fixed and the assessee was fully conscious of the fact that it was subject to variation. Hence, assessee invoke the provisions of Rule 7 and seek an order for provisional assessment. Assessee paid the differential duty of Rs. 142.78 crores even without waiting for any notice under Section 11A(1).

SC(LB) thus clarified 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”.

Citation: [TS-321-SC-2019-EXC]

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