REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.225 OF 2010 (Arising out of S.L.P. (C) No.17339 of 2009)

Commissioner of Central Excise             ...Appellant(s)

Versus

M/s. International Auto Limited           ...Respondent(s)

O  R  D  E  R

Delay condoned.

Leave granted.

In  this  case,  Department  seeks  to  recover  

interest on differential duty, paid by the assessee, under  

Section 11AB of the Central Excise Act, 1944, which is  

disputed by the assessee.  

During  the  relevant  Assessment  Years,  

assessee  supplied  auto  parts  to  their  customers  

[manufacturers of motor vehicles], such as Tata Motors,  

Mahindra and Mahindra and Piaggio Vehicles Private Limited  

– who determined the prices of auto parts having regard to  

the  cost  of  raw  material,  manufacturing  cost,  profit  

margin, etc. and placed orders with the assessee.  In case  

of Tata Motors, orders were placed through internet under  

a software system known as “SRM”.   

...2/-

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Since  price  difference  arose  between  the  

price on the date of removal and the enhanced price at  

which  the  goods  stood  ultimately  sold,  the  Department  

issued a show-cause notice proposing to levy interest on  

the differential duty, paid by the assessee, under Section  

11AB of the Central Excise Act, 1944 [`Act', for short].

The case of the assessee, before us, was that such  

interest was not leviable under Section 11AB of the Act,  

particularly in view of the fact that prices indicated in  

the purchase orders were final during the period of supply  

of goods.  According to the assessee, in the present case,  

the Department has accepted the position that the prices  

in the purchase orders were final.  Further, according to  

the assessee herein, there was no price variation clause  

in the purchase orders, therefore, there was no scope for  

increase  in  prices  subsequently  and  that  too,  

retrospectively.   In  short,  according  to  the  assessee,  

prices indicated in the purchase orders were final and not  

liable to change at the time of removal of goods.  It was  

submitted that, in the circumstances, the present case was  

not a case of short-levy or non-levy of the goods removed  

by the assessee calling for recovery under Section 11A of  

the  Act,  hence,  this  was  not  a  case  for  charging  of  

interest under Section 11AB of the Act.  Learned counsel  

appearing on behalf of the assessee submitted that this  

case is squarely covered by the judgement of three learned  

Judges of this Court in the case of  M.R.F. Limited vs.  

Collector of Central Excise, Madras, reported in [1997] 92  

E.L.T.309.

...3/-

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We find no merit in the submissions advanced  

on behalf of the assessee.  The controversy arising in  

this civil appeal is squarely covered by the judgement of  

this Court in the case of Commissioner of Central Excise,  

Pune vs.  SKF  India  Limited,  reported  in  [2009]   239  

E.L.T.385.   We  quote  hereinbelow relevant observations  

made in the case of SKF India Limited [supra], which reads  

as follows:

“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  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

...4/-

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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  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

...5/-

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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:

  `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

...6/-

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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  under  sub-section (2B) of section 11A and attracted  levy of interest under section 11AB of the Act.”

Section 11A of the Act deals with recovery  

of duty not levied or not paid or short-levied or short-

paid.  The said section, which stood inserted by Act 25 of  

1978,  underwent  a  sea-change  when  Parliament  inserted  

major changes in that section  vide Act 14 of 2001 [with  

effect from 11st May, 2001] and Act 32 of 2003 [with effect  

from  14th May,  2003].   It  needs  to  be  mentioned  that  

simultaneously Act 14 of 2001 also made changes to Section  

11AB of the Act.  In the case of  S.K.F. India Limited  

[supra], it has been, inter alia, held, as can be seen  

from the above-quoted paragraphs, that sub-section 2(B) of  

Section 11A provides that the assessee in default may make  

payment  of  the  unpaid  duty  on  the  basis  of  his  own  

ascertainment or  as  ascertained  by  a  Central  Excise  

Officer and, in that event, such assessee in default would  

not be served with the Demand Notice under Section 11A(1)  

of the Act.  However, Explanation (2) to the sub-section  

makes it clear that such payment would not be exempt from  

interest chargeable under Section 11AB of the Act.  What  

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

reiterated in Section 11AB of the Act, which deals with  

interest on delayed payment of duty.  From the Scheme of  

Section 11A(2B) and Section 11AB of the Act, it becomes  

clear that  interest is levied  for loss of revenue on any

...7/-

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count.  In the present case, one fact remains undisputed,  

namely,  accrual  of  price  differential.   What  does  

differential  price  signify?   It  signifies  that  value,  

which  is  the  function  of  the  price,  on  the  date  of  

removal/clearance of the goods was not correct.  That, it  

was understated.  Therefore, the price indicated by the  

supplementary invoice is directly relatable to the value  

of the goods on the date of clearance, hence, enhanced  

duty.  This enhanced duty is on the corrected value of the  

goods on the date of removal.  When the differential duty  

is paid after the date of clearance, it indicates short-

payment/short-levy on the date of removal, hence, interest  

which  is  for  loss  of  revenue,  becomes  leviable  under  

Section 11AB of the Act. In our view, with the entire  

change in the Scheme of recovery of duty under the Act,  

particularly after insertion of Act 14 of 2001 and Act 32  

of 2003, the judgement of this Court in the case of M.R.F.  

Limited [supra] would not apply.  That judgement was on  

interpretation of Section 11B of the Act, which concerns  

claim for refund of duty by the assessee.  That judgement  

was in the context of the price list approved on 14th May,  

1983.  In that case, assessee had made a claim for refund  

of excise duty on the differential between the price on  

the date of removal and the reduced price at which tyres  

were sold.  The price was approved by the Government.  In  

that case, the assessee submitted that its price list was  

approved  by  the  Government  on  14th May,  1983,  but  

subsequent thereto, on account of consumer resistance, the  

Government of India directed the assessee to roll back the

...8/-

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prices to pre-14th May, 1983 level and on that account,  

price  differential  arose  on  the  basis  of  which  the  

assessee  claimed  refund  of  excise  duty  which  stood  

rejected  by  this  Court  on  the  ground  that  once  the  

assessee  had  cleared  the  goods  on  classification,  the  

assessee became liable to payment of duty on the date of  

removal  and  subsequent  reduction  in  the  prices  for  

whatever reason cannot be made a matter of concern to the  

Department insofar as the liability to pay excise duty was  

concerned.  In the present case, we are concerned with the  

imposition of interest which, as stated above, is charged  

to compensate the Department for loss of revenue.  Be that  

as it may, as stated above, the Scheme of Section 11A of  

the Act has since undergone substantial change and, in the  

circumstances, in our view, the judgement of this Court in  

the case of  M.R.F. Limited [supra] has no application to  

the facts of this case.  In our view, the judgement of  

this Court in the case of  SKF India Limited [supra] is  

squarely applicable to the facts of this case.

Accordingly, civil appeal is allowed with no  

order as to costs.

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

......................J.                     [AFTAB ALAM]

New Delhi, January 08, 2010.