Interest on Duty Paid on Supplementary Invoices - SKF Goes to Larger Bench
THIS is a long and interesting story that started with a non existing 2003 letter of the CBEC.
In F.No. 208/27/2003-CX-6, dated 18.12.2006, the CBEC stated,
It has been noticed that there is a practice in certain industries, especially those manufacturing motor vehicle parts, that many a time vendors raise supplementary invoices on account of revision of prices. The differential duty is paid by the vendor on the value of such supplementary invoices but interest is not paid on said differential duty. This issue was examined by the Board, and it was clarified vide letter F.No.574/CE/5/Misc.2003, dated 28.07.2003, that interest under section 11AB of the Central Excise Act, 1944 is payable on such differential duty.
The fact is Board had never issued the letter F.No.574/CE/5/Misc.2003, dated 28.07.2003. DDT is well aware that some years ago there was an effort to trace this mysterious letter and they could not find it. Strangely, Board relied on this non-existent letter to advise the field on how to recover interest.
However, Show Cause Notice flew in all directions and five years later in 2008, a larger bench of the Tribunal referred the matter to a still larger five member bench.
In DDT 989 - 11.11.2008, DDT mentioned, "What started in 2003 has reached a VERY LARGER Bench in 2008 and may reach the Supreme Court in 2015!" Actually it reached the Supreme Court much earlier and a second round happened in the Supreme Court recently.
In the tortuous litigation journey, while the matter was pending before the five-member bench of the Tribunal, a High Court held that no interest was payable, which was set aside by the Supreme Court, but which was followed by two other High Courts. In the meanwhile, another Bench of the Tribunal followed the decision of the five-member bench - the only hitch was that the five-member bench had not delivered its judgement; the Tribunal referred to a judgement that did not exist!
And then came the famous judgement of the Supreme Court in SKF - in which the Supreme Court ruled that interest was payable on the duty paid on supplementary invoices. However, the Karnataka High Court in Bharat Heavy Electricals - , distinguished the SKF judgement.
The issue was again decided by the Supreme Court on Monday. The question again was whether interest is leviable under Section 11AB of the Act on the differential duty amount paid under supplementary invoices due to price increase by virtue of price variation clause in the sale contract. This time, the Supreme Court took the same view as the Karnataka High Court did. The Supreme Court observed, "It is undeniable that under Section 4 of the Act, the excise duty is to be paid on the 'transaction value' and such a transaction value has to be seen at the time of clearance of the goods. Indubitably, when the goods were cleared, the excise duty was paid taking into consideration the price that was actually charged and was reflected in the invoices raised for the said purpose. The Department cannot plead that as on that date, this was not the price charged. No doubt, when the differential payment is made at a later date, further amount towards excise duty becomes payable as a result of said differential in price. Further, such an event took place at a subsequent date. As on the date when the goods were cleared, there was no certainty that there would be price escalation and it was beyond comprehension to ascertain the exactitude of such an escalation. It would be impossible to expect the assessee to pay the excise duty, at the time of clearance of the goods, on the basis of price escalation that took place at a later date in future. Therefore, as on the date of clearance when excise duty was paid, it could not be treated as 'short paid' on the said date. As a consequence, when the principal amount, namely, the excise duty itself was not payable (i.e. on the differential) on the date of clearance of the goods, there cannot be any question of law to pay interest."
So, the Supreme Court has referred the matter to a Larger Bench.
The issue which was believed to have been finally settled six years ago has again come back to life. SKF is no more good law, at least until the Larger Bench decision comes. So, as of now interest need not be paid and litigation can be kept alive till the matter reaches finality - again.
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