REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5190-5191/ 2008

Commissioner of Central Excise, Pune ….....Appellant

Versus

M/s SKF India Ltd. …….Respondent

J U D G M E N T

AFTAB ALAM,J.

1. Just a few weeks ago in Union of India Vs. M/s Rajasthan Spinning &  

Weaving Mills (Appeal arising from SLP (C) No.15927 of 2007) we had the  

occasion to examine the nature and scope of the penalty provision in the  

Central Excise Act as contained in section 11AC, one of the four sections,  

forming a quartet, concerning recovery of unpaid duty, interest on deferred

payment/realisation  of  duty and penalty for non-payment  of duty.  In this  

case we are called upon to consider the conditions that would attract the levy  

of interest on excise duty not levied or short levied, not paid or short paid or  

erroneously refunded as provided under sections 11A, 11AA and 11AB of  

the Act.  It may thus be seen as the sequel to the earlier decision in M/s.  

Rajasthan Spinning & Weaving Mills.

2. The facts of the case are fairly simple and admitted by both sides.  

The respondent-assessee  is  engaged in  the  manufacture  and sale  of  ball-  

bearings  and  textile  machine  parts.  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 demanded from its customers the  

balance of the higher prices and issued to them supplementary invoices. At  

the same time it 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.  The  assessee  was  given  a  notice  dated  April  4,  2006  

demanding Rs.95,590/- as interest on delayed payment of duty under section  

11AB of the Central Excise Act and further asking it to show cause why  

penalty may also not be imposed on it under section 37(3) of the Act.  The  

assessee gave its reply stating that the payment of differential duty was made  

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by it at the time of issuing supplementary invoices to the customers and,  

therefore, there was no question of charging interest much less any penalty.  

However,  the  Assistant  Commissioner  Central  Excise,  Pune  II  Division,  

confirmed the demand of interest by his order dated June 5, 2006 and further  

imposed a penalty of Rs.5, 000/- against the assessee. The assessee took the  

matter in appeal before the Commissioner (Appeals) Central Excise, Pune I,  

who by his order dated August 30, 2006 allowed the appeal and set-aside the  

order of the Assistant Commissioner.  The Revenue then brought the matter  

before  the  Customs,  Excise  and  Service  Tax  Appellate  Tribunal  but  its  

appeal  was  dismissed  by  order  dated  January  3,  2008.   The  Tribunal,  

following certain decisions of the Bombay High Court held that no interest  

was chargeable where there was no time-gap between the payment of the  

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.

3. Aggrieved by the order of the Tribunal, the Revenue has come to this  

Court in appeal.

4. In Rajasthan Spinning & Weaving Mills we noted that the three issues  

of recovery, interest and penalty arising from non-levy or short levy of duty,  

non-payment or short payment of duty or erroneous refund of duty are dealt  

with under sections 11A (recovery of duties), 11AA an 11AB (interest on  

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delayed payment of duty) and 11AC (penalty for short levy or non levy of  

duty) of the Act.  Section 11A is a long section which has become longer by  

the insertion of sub-sections by later amendments. In its present form section  

11A reads as under.             

“11A.  Recovery of duties not levied or not paid or short- levied or short-paid or erroneously refunded.-(1) When any  duty of excise has not been levied or paid or has been short- levied or short-paid or [erroneously refunded, whether or not  such non-levy or non-payment, short-levy or short payment or  erroneous refund, as the case may be, was on the basis of any  approval, acceptance or assessment relating to the rate of duty  on or valuation of excisable goods under any other provisions  of  this  Act  or  the  rules  made  thereunder],  a  Central  Excise  Officer  may,  within  [one year]  from the relevant  date,  serve  notice on the person chargeable with the duty which has not  been levied or paid or which has been short-levied or short-paid  or to whom the refund has erroneously been made,  requiring  him to show cause why he should not pay the amount specified  in the notice;  

Provided  that  where  any  duty  of  excise  has  not  been  levied  or  paid  or  has  been  short-levied  or  short-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 of the rules made thereunder  with intent  to evade payment of duty, by such person or his  agent, the  provisions  of this sub-section shall have effect, [as  if]  for  the  words  [“one  year”],  the  words  “five  years”  were  substituted:

Explanation. - Where the service of the notice is stayed by an  order of a court, the period of such stay shall be excluded in  computing the aforesaid period of [one year] or five years, as  the case may be.

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[(1A) When any duty of excise has not been levied or paid or  has been short-levied or short paid or erroneously refunded, by  reason  of  fraud,  collusion  or  any  wilful  misstatement  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, by such person or his agent, to whom a notice  is  served under the proviso to sub-section (1) by the Central  Excise  Officer,  may  pay  duty  in  full  or  in  part  as  may  be  accepted by him, and the interest payable thereon under Section  11AB and penalty  equal  to  twenty-five  per  cent  of  the  duty  specified in the notice or the duty so accepted by such person  within thirty days of the receipt of the notice.]  

(2)  The  [Central  Excise  Officer]  shall,  after  considering  the  representation, if any, made by the person on whom notice is  served under sub-section (1), determine the amount of duty of  excise due from such person (not being in excess of the amount  specified in the notice) and thereupon such person shall pay the  amount so determined.  

Provided  that  if  such person has  paid  the  duty  in  full  together with, interest and penalty under sub-section (1A), the  proceedings  in  respect  of  such  person  and  other  persons  to  whom notice  are  served under  sub-section  (1)  shall,  without  prejudice  to  the  provisions  of  section  9,  9A  and  9AA,  be  deemed to be conclusive as to the matters stated therein:

Provided further that, if such person has paid duty in part,  interest and penalty under sub-section (1A), the Central Excise  Officers,  shall  determine  the  amount  of  duty  or  interest  not  being in excess of the amount partly due from such person.]

[(2A) Where any notice has been served on a person under sub- section (1), the Central Excise Officer,-

(a) in case any duty of excise has not been levied or  paid  or  has  been  short-levied  or  short-paid  or  erroneously  refunded,  by  reason  of  fraud,  collusion  or  any  wilful  mis-statement  or  suppression of facts, or contravention of any of  

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the  provisions  of  this  Act  or  the  rules  made  thereunder with intent to evade payment of duty,  where it is possible to do so, shall determine the  amount of such duty, within a period of one year;  and   

(b) in any other case, where it is possible to do so,  shall  determine  the  amount  of  duty  of  excise  which has not  been levied or  paid or  has been  short-levied  or  short-paid  or  erroneously  refunded, within a period of  six months,   from  the date  of  service of  the  notice  on the person  under sub-section (1)  

(2B) Where any duty of excise has not been levied or paid or  has  been  short-levied  or  short-paid  or  erroneously  refunded, the person, chargeable with the duty, may pay the  amount of duty [on the basis of his own ascertainment of  such duty or on the basis of duty ascertained by a Central  Excise Officer] before service of notice on him under sub- section (1) in respect of the duty, and inform the Central  Excise Officer of such payment in writing, who, on receipt  of such information shall not serve any notice under sub- section (1) in respect of the duty so paid:

        Provided that the Central Excise Officer may determine  the  amount  of  short  payment  of  duty,  if  any,  which  in  his  opinion has not been paid by such person and, then, the Central  Excise  Officer  shall  proceed  to  recover  such  amount  in  the  manner specified in this section, and the period of “one year”  referred to in sub-section (1) shall be counted from the date of  receipt of such information of payment.  

Explanation  1.  -  Nothing  contained  in  this  sub-section  shall  apply in a case where the duty was not levied or was not paid or  was short-levied or was short-paid or was 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 of the rules made thereunder with intent to evade  payment of duty.  

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Explanation  2.-  For  the  removal  of  doubts,  it  is  hereby  declared  that  the  interest  under  section  11AB  shall  be  payable on the amount paid by the person under this sub- section and also on the amount of  short-payment  of  duty,  if  any,  as may be determined by the Central Excise Officer, but  for this sub-section.  

(2C) The provisions of sub-section (2B) shall not apply to any  case 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.]  

(3)     For the purposes of this section-  

(i) “refund” includes rebate of duty of excise on excisable  goods exported out of India or on excisable materials  used in the manufacture of goods which are exported  out of India;  

(ii) “relevant date” means,-  

[(a) in the case of excisable goods on which duty of excise has         not  been levied  or paid or has been short-levied or short-         paid.  

(A) where under the rules made under this Act a  periodical return, showing particulars of the  duty paid on the  excisable  goods removed  during the  period to  which  the  said return  relates, is to be filed by a manufacturer or a  producer or a licensee of a warehouse, as the  case may be, the date on which such return  is so filed;  

(B) where  no  periodical  return  as  aforesaid  is  filed, the last date on which such return is to  be filed under the said rules;  

(C) in any other case, the date on which the duty  is to be paid under this Act or the rules made  thereunder;]

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(b) in a case where duty of excise is provisionally assessed                                   under this Act or the rules made thereunder, the date of                                 adjustment of duty after the final assessment thereof;  

(c)     in the case of excisable goods on which duty of excise has           been erroneously refunded, the date of such refund.]”   

                                                      (emphasis added)

5.          Of the two sections dealing with interest section 11AA relates to the  

period from expiry of three months from the date of determination of the  

differential  duty  under  sub-section  (2)  of  section  11A  till  the  date  of  

payment and section 11AB is in regard to 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.

6. In  this  case  we  are  concerned  with  section  11AB which  reads  as  

under.   

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 short-paid or erroneously refunded, the person who is  liable to pay duty as determined under sub-section (2),  or has  paid the duty under sub-section 2(B), of section 11A, shall,  in addition to the duty, be liable to pay interest at such rate  not below [ten per cent] and not exceeding thirty-six per cent.  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 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:

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                                                                  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 (l) 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   “National  Tax  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 “National Tax Tribunal” or,  as the case may be, the court, the interest shall be payable on  such increased or further increased amount of duty.]

                                                                        (emphasis added)

7. If  the  object  of  the  law is  to  state  clearly  and  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  

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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. 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 11AA and 11AB. Also, there  

is much scope to reorganise all the different subsections of section 11A and  

to present the scheme of that section in a more coherent and readable form.

8. Be that as it may. In the case in hand we have to deal with the law as  

it stands now.

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

short payment or 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  mis-statement  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  

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with differently. Section 11A, 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 (1A) of  

section 11A and the cases where the non-payment or short payment of duty  

is not intentional under sub-section (2B).  

10. Sub-section (2B) of section 11A 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 11AB, 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.  

What is stated in Explanation 2 to sub-section (2B) is reiterated in section  

11AB 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 (2B) of section 11A, shall, in addition to the  

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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 mis-

statement 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 (11A, 11AA, 11AB & 11AC)  

interest  is  leviable  on delayed or  deferred payment  of  duty for  whatever  

reasons.

11. 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 (2B) of  

section 11A of the Act.

12. The Bombay High Court, Aurangabad Bench, in its decision in The  

Commissioner of Central Excise, Aurangabad vs. M/s Rucha Engineering   

Pvt. Ltd., (First Appeal No.42 of 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 11A (2B) or section 11AB 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.  In  M/s  Rucha  Engineering  the  High  Court  

observed as follows:

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“It is evident that the section (11AB) comes into play if  the  duty  paid/levied  is  short.  Both,  the  Commissioner  (Appeals)  and  the  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.  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  11A (2)  and 11A (2B)  were  not  applicable  as  the  situation occurred in  the  instant  case  was  quite  different,  section  11AB  (1)  was  not  at  all  applicable, and therefore, the Assessee was not required  to pay interest.”

13. 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.

14. We are unable to subscribe to the view taken by the High Court. 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  

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under sub-section (2B) of section 11A and attracted levy of interest under  

section 11AB of the Act.   

15. For the reasons discussed above we set aside the judgments and orders  

passed  by  the  Tribunal  and the  Commissioner  (Appeals).  We restore  the  

order passed by the Assistant Commissioner in so far as charge of interest is  

concerned. On the facts of this case there is no question of imposition of any  

penalty. Hence, that part of the order of the Assistant Commissioner is set  

aside.

16. In the result the appeals are allowed but with no order as to costs.  

…………………………….J.            [ S.H. KAPADIA ]

…………………………….J.  [ AFTAB ALAM ]

New Delhi, July 6,  2009.

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