M/S STEEL AUTHORITY OF INDIA LTD. versus COMMISSIONER OF CENTRAL EXCISE, RAIPUR on 8 May 2019

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[2019] 7 S.C.R.

M/S STEEL AUTHORITY OF INDIA LTD.

v.

COMMISSIONER OF CENTRAL EXCISE, RAIPUR

(Civil Appeal No. 2150 of 2012)

MAY 8, 2019

[RANJAN GOGOI, CJI, UDAY UMESH LALIT AND

K. M. JOSEPH, JJ.]

Central Excise Act, 1944: s.11AB – Demand of interest unders.11AB – Whether interest is payable under s.11AB of the Act on thedifferential excise duty with retrospective effect that became payableon the basis of escalation clause – Held: If there is a non-levy, non-payment, short-levy or short-payment, the same becomes recoverableunder s.11A – In any of the four contingencies namely, non-levy,non-payment, short-levy or short-payment referred to in s.11A,s.11AB is attracted – Thus, in any of the four contingencies, forany duty that is determined or paid as provided under s.11A,necessarily the assessee becomes liable to pay interest under s.11AB

– The interest clock ticks from the date as provided in r.8 r/w s.11AB– The expression “the month in which the duty ought to have beenpaid” under s.11AB of the Act, when it is read alongwith r.8, whichdeclares that the duty on the goods removed from the factory orwarehouse during a month is to be paid on the 6th day of thefollowing month would mean that the Legislature has understoodthe expression “the month in which the duty ought to have beenpaid” under the Act in the same sense as it is declared in r.8 –Central Excise Rules, 2002 – r.8.

Central Excise Act, 1944: s.11AB – When price is revisedupward with retrospective effect and the excise duty on the same ispaid immediately on a future date, whether interest is payable unders.11AB from the first day of the month succeeding the month inwhich the duty ought to have been paid under the Act – Held: Underthe Rules, goods become exigible to duty on removal – Assessmentis to be done by assessee itself by way of self-assessment – In acase where duty is payable on the basis of the value, the assessee isto apply the rate of duty to the value and pay the duty on or beforethe sixth day of the month succeeding the month in which removalof the goods takes place – When the provisional assessment is finalized, the assessee becomes liable, however, to pay interest fromthe first date of the month succeeding the month for which the amountis determined – Central Excise Rules, 2002 – r.8.

Dismissing the appeals, the Court

HELD : 1. The scheme of the Central Excise Act and theRules are a separate code. Section 11A is a provision for recovery.If there is a non-levy, non-payment, short-levy or short-payment,the same becomes recoverable under Section 11A. If there isany of the four contingencies referred to in Section 11A, thenSection 11AB is attracted. The working of the parent Act isintricately intertwined with the rules. Therefore, if the value whichis declared by way of self-assessment, by way of rule 6 and onwhich the duty is paid is not the full value then under the schemeof Section 11A read with Section 11AB and the Rules, theassessee incurs liability for interest when in a case where thereis full value found and it dates back to the date of removal. Inthis case, admittedly, at the time goods were removed the pricewas not fixed. The assessee was fully conscious of the fact that itwas subject to variation and had knowledge that the value it wasdeclaring was amenable to upward revision. The circumstanceswere indeed clearly appropriate for the assessee to invoke theprovisions of Rule 7 and seek an order for provisional assessment.[Paras 35, 36] [440-A-D]

Rainbow Industries (P) Ltd. v. CCE (1994) 6 SCC563 : [1994] 4 Suppl. SCR 135 ; Balarpur IndustriesLtd. v. Assistant Collector of Customs and CentralExcise & Ors. (1995) Suppl. (3) SCC 429 ; Collectorof Central Excise, Baroda v. Cotspun Ltd. (1999) 7 SCC633 : [1999] 3 Suppl. SCR 184 ; M/s. EastlandCombines, Coimbatore v. Collector of Central Excise,Coimbatore AIR 2003 SC 843 : [2003] 1 SCR 98 ; ITWSignod India Limited v. Collector of Central Excise(2004) 3 SCC 48 : [2003] 5 Suppl. SCR 751 – referredto.

2. Undoubtedly, the amended provisions of Section 11Aempowered recovery of duty even in a case where theclassification list has been approved earlier and it would operate A

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[2019] 7 S.C.R.

Afrom the date of removal and not from the date on which showcause was issued. Section 11A which was inserted by Act 26 of1978 is substantially the reproduction of Rule 10 of 1944 Rules.Section 11AB, it came to be inserted by Act 33 of 1996. Thereafter,it was amended by Act 10 of 2000, Act 14 of 2001, Act 20 of 2002and Act 49 of 2005. Section 11A must necessarily be read withBSection 11AB. This is for the reason that interest under Section11AB is premised upon the duty of excise not being levied orpaid or short levied, short paid or erroneously refunded. Suchduty is either determined under sub-Section (2) of Section 11Aor without such determination it being paid under sub-SectionC(2B) of Section 11A. In any of the circumstances, namely, non-levy, non-payment, short-levy and short-paid, any duty has beendetermined or paid as has been provided under Section 11A,necessarily the assessee becomes liable to pay interest from thefirst date of the month succeeding the month in which duty oughtto have been paid. [Paras 43, 45-47] [448-G-H; 452-B; F-H;D453-A-B]

N.B. Sanjana, Assistant Collector of Central Excise,Bombay & Ors. v. The Elphinstone Spinning andWeaving Mills Co. Ltd.; 1978 E.L.T. (J 399) – referredto.

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3. Under the Rules, goods become exigible to duty onremoval. Assessment is to be done by assessee itself by way ofself-assessment. In a case where duty is payable on the basis ofthe value, the assessee is to apply the rate of duty to the valueand pay the duty on or before the sixth day of the monthFsucceeding the month in which removal of the goods takes place.Undoubtedly, if the removal takes place in March, the paymentis to be made by 31st of March. In the case of provisionalassessment, the assessee entertains a doubt regarding the actualvalue or the rate of duty. He applies and he is permitted underGthe order to remove goods on a provisional assessment. Theassessment is thereafter finalized. When the provisionalassessment is finalized, the assessee becomes liable however topay interest from the first date of the month succeeding the monthfor which the amount is determined. Under Rule 7(4), theexpression “succeeding the month for which such amount” isHdetermined refer to the month of removal of the goods. When

the provisional assessment has such consequences, it wouldoccasion an invidious discrimination to place an interpretationon Section 11AB by which those assesses who go in for provisionalassessment under Rule 7 are called upon to pay interest uponfinalization of the assessment with reference to the date ofremoval in a case where the value is fully determined as a resultof escalation clause being worked resulting in an upward revisionof prices and under Section 11AB payability arises with referenceto the date of decision to grant escalation. In other words, thelaw will have to be interpreted in a manner that it is fair and equalto similarly situated group of assessees. Legislative intention,in this regard, also cannot be otherwise. Legislature has clearlyin Section 11AB spelt out the time with reference to the Act andthe Rules. The expression “the month in which the duty ought tohave been paid” under this Act, when it is read alongwith Rule 8,which declares that the duty on the goods removed from the factoryor warehouse during a month is to be paid on the 6th day of thefollowing month would mean that the Legislature has understoodthe expression “the month in which the duty ought to have beenpaid” under the Act in the same sense as it is declared in Rule 8.[Paras 49-51] [453-C-H; 454-A-B; D]

Collector of Central Excise, Baroda v. Cotspun Ltd.(1999) 7 SCC 633 : [1999] 3 Suppl. SCR 184– referred to.

4.1 In a case where goods are removed clandestinely, therewould be no levy. Equally, there will be non-payment. Thus, acase of non-levy can overlap with non-payment. No doubt, therecan be cases where despite full levy there can be no payment,may be by mistake or otherwise. Equally thus, if there is no non-levy, there can be partial payment. That would make it a case ofshort payment as the payment does not match the amount of dutylevied as per the self-assessment carried out by the assessee. Ashort levy ordinarily would be a case where out of the ingredientsof assessment, namely, (1) rate of duty, (2) valuation and (3)quantity removed, the components all or any are incorrectlyapplied. As an instance if the full rate of duty applicable is notapplied though the valuation and the quantity is correctly arrivedat, it may fall under short-levy. In one sense it could be said that AB

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Athere is short-payment also, as if payment could be understoodas the amount which ought to have been paid but it has not beenpaid, it may be a case of short payment. But it may be moreappropriate to put it under short levy where the deficit in paymentis essentially in terms of a short-levy. [Para 58] [456-B-D]

B4.2 If short- levy is to be understood as confined to caseswhere the assessment is not the full assessment, taking intoaccount the parameters involved correctly, namely, rate of duty,valuation and quantity it could be classified as a case of shortlevy as one of the components of proper assessment namely,valuation has been incorrectly arrived at. The payment in such aCcase is made in terms of the incorrectly assessed figure. Thepayment matches the assessment under Rule 10 of 1944 Rules,the expression “short-payment” is not used. Instead the words“duty has not been paid in full”, has been used. No doubt, in acase where in law though the amount which is paid is in harmonyDwith the amount which is assessed, it is not the amount whichought to have been paid by the assessee. The absence of fullpayment of duty or short payment has indeed also in one sensetaken place. In a case where there is an escalation clause, goodsare cleared on a provisional price. Consequently, the value isprovisional. There is a subsequent escalation with retrospectiveEeffect. It will affect the valuation which was employed in the self-assessment by the assessee which would necessarily beprovisional. Enhancement of the value will date back to the datesof removal in view of the retrospective operation. Admittedlythe liability for payment of differential duty has arisen. Upon the

Ftrue value, in a case of retrospective escalation of price thoughlater agreed being received and consequential differential dutybeing admittedly payable, it would result in Section 11A read withSection 11AB applying. [Para 59] [456-F-H; 457-A-C]

4.3 It is true that the statutory authority has found it to beGa case of short payment. In the notice issued claiming interest itis stated there is short levy. Proceeding on the basis that it is acase of short levy, Section 11A read with Section 11AB is attractedand the interest clock ticks from the date as provided in Rule 8read with Section 11AB. If the concept of short payment isstretched to include all amounts which ought to have been paid,H

it may also be treated as a case of short payment though juridicallyit may be true that it may strictly fall under short levy. [Para 60][457-C-E]

5. As far as the scope of the second explanation of Section11A(2)(b) is concerned, it contemplates payment voluntarily bythe assessee. It is without any notice being issued under Section11A. There is also reference to liability on the part of theassessee to pay interest under Section 11A(2)(b), not only onthe amount which is paid within the meaning of Section 11A(2)(b)but on any short payment as may be determined by the exciseofficer. This only means that payment can be by an assessee ofany of the four amounts namely, non-levy, non-payment, short-levy or short-payment. Since there is no notice under Section11A and non-determination of the amount as such pursuant towhich the amount is paid it may happen that there may be shortfallin the amount which is paid by the assessee in comparison towhat the assessee is legally required to pay. [Para 62] [457-G-H;458-A-C]

CCE v. SKF India Ltd. 2009 (13) SCC 461 : 2009] 10SCR 714 ; CCE v. International Auto Ltd. 2010 (2) SCC672 : [2010] 1 SCR 211 – relied on.

E.D. Sassoon & Co. Ltd. v. CIT AIR 1954 SC 470 :1955 SCR 599 ; Commissioner of Income Tax, Madrasv. A. Gajapathy Naidu, Madras AIR 1964 SC 1653 :1964 SCR 767 ; Vikrant Tyres Ltd. v. First Income TaxOfficer, Mysore 2001 (3) SCC 76 ; V.V.S. Sugars v. Govt.of A.P. and Others 1999 (4) SCC 192 (India Carbonvs. VBS Sugar): [1999] 2 SCR 925 ; P.G. & W. Sawoo(P) Ltd. v. CIT & Ors. 2017 (13) SCC 284 – heldinapplicable.

MRF Ltd. v. Collector of Central Excise, Madras1997 (5) SCC 104 ; J.K. Synthetics v. State ofRajasthan (1994) 4 SCC 276 ; Purolator India Limitedv. Commissioner of Central Excise 2015 (10) SCC715 : [2015] 9 SCR 812 ; India Carbon Ltd. & Ors. v.State of Assam 1997 (6) SCC 479 : [1997] 3 Suppl.SCR 1 ; E.I.D. Parry (India) Ltd. v. CCT 2005 (4) SCC779 : [2005] 3 SCR 1144 – referred to.

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ACase Law Reference

FCIVIL APPELLATE JURISDICTION : Civil Appeal No. 2150of 2012.

From the Judgment and Order dated 13.08.2010 of theCustoms, Excise & Service Tax Appellate Tribunal, New Delhi in AppealNo. E/367/2008.GWith Civil Appeal Nos. 2562 of 2012, 600, 1522-1523, 599 of 2013.

V. Sridharan, Sr. Adv., L. Badri Narayanan, Aditya Bhattacharya,Victor Das, Ms. Apeksha Mehta, Manish Rastogi, Shrey Ashat, M. P.Devanath, Vikas Singh Jangra, Advs. for the Appellants.H

Vikramjit Banerjee, ASG, K. Radhakrishnan, Sr. Adv., ArijitPrasad, Shekhar Vyas, B. Krishna Prasad, Advs. for the Respondent.

The Judgment of the Court was delivered by

K. M. JOSEPH, J.

1. A Bench of two judges doubted the correctness of the judgmentrendered by a Bench of two learned judges of this Court in CCE v. SKFIndia Ltd. 2009 (13) SCC 461 (hereinafter referred to as the “SKF Case”)as also the another judgment rendered by the same Bench in CCE v.International Auto Ltd. 2010 (2) SCC 672 and on the said basis to resolvethe controversy the matter stood posted before us.

2. Very briefly put, the question which we are called upon toconsider and resolve is as to whether interest is payable on the differentialexcise duty with retrospective effect that become payable on the basisof escalation clause under Section 11AB of the Central Excise Act,1944 (hereinafter referred to as “the Act”).

3. In this batch of appeals, we will treat C.A. No.2150/2012 asthe leading case. We will refer to the said case as the SAIL Case. Inthe said case originally, the appellant company which is manufacturer ofvarious products including rail sold the same to the Indian Railways.The products were cleared on sale from 1[st] January, 2005 to July 2006.The goods were cleared on the payment of excise duty on the paymentof price which was fixed based on their circular dated 24.04.2005.Subsequently, the prices were enhanced by way of price circular dated20.07.2006. The revision came into effect with retrospective effect. Itis based on the same that SAIL deposited Rs.142 crores by way ofexcise duty. This was done in August 2006. Thereupon, the officers ofthe department indulged in correspondence with SAIL seeking detailsregarding the clearances which were effected. On the basis of materialmade available, SAIL was called upon to remit interest under Section11AB of the Act. SAIL filed its objections. It is after considering theobjections, the authority found that SAIL was liable to pay interest on asum of Rs.142 crores calculated based on the date of removal of thegoods during the period from January, 2005 to July,2006. Variousobjections raised by the appellants were dealt with and they were foundmerit less. An appeal was carried before the Tribunal. The Tribunalrelied upon the judgment of this Court in SKF India Ltd. Case (supra)and accordingly dismissed the appeal. Thereafter when the matter came A

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Aup before this Court, a Bench of two learned judges after elaboratelyhearing the matter doubted the correctness of the decision in SKF caseand also International Auto and hence the cases were referred to us inthe decision reported in 2015 (16) SCC 107. We heard learned counselfor the parties.

B4. In SKF case also the assessee on the basis of revision of priceswith retrospective effect paid the differential duty on being called uponto pay the said amount. Thereafter the Revenue called upon the asseseeto pay interest under Section 11AB of the Act. A Bench of two learnedjudges after considering Sections 11A and 11AB disapproved thejudgment of the Bombay High Court in CCE v. Rucha Engineering P.Ltd.Cholding inter alia as follows:

“11. Section 11-A puts the cases of non-levy or short-levy, non-payment or short-payment or erroneous refund of duty in twocategories. One in which the non-payment or short-payment, etc.of duty is for a reason other than deceit; the default is due tooversight or some mistake and it is not intentional. The second inwhich the non-payment or short-payment, etc. of duty is “by reasonof fraud, collusion or any wilful misstatement or suppression offacts, or contravention of any of the provisions of the Act or ofRules 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 differentconsequences and are dealt with differently.

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12. Section 11-A, however allow the assessees-in-default inboth kinds of cases to make amends, subject of course to certainterms and conditions. The cases where the non-payment or short-payment, etc. of duty is by reason of fraud, collusion, etc. aredealt with under sub-section (1-A) of Section 11-A and the caseswhere the non-payment or short-payment of duty is not intentionalunder sub-section (2-B).

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13. Sub-section (2-B) of Section 11-A provides that theassessee-in-default may, before the notice issued under sub-section(1) is served on him, make payment of the unpaid duty on thebasis of his own ascertainment or as ascertained by a CentralExcise Officer and inform the Central Excise Officer in writingabout the payment made by him and in that event he would not be G

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given the demand notice under sub-section (1). But Explanation 2to the sub-section makes it expressly clear that such paymentwould not be exempt from interest chargeable under Section 11-AB, that is, for the period from the first date of the monthsucceeding the month in which the duty ought to have been paidtill the date of payment of the duty.

17. We are unable to subscribe to the view taken by the HighCourt in Rucha Engg. [ First Appeal No. 42 of 2007 decided on3-4-2007] It is to be noted that the assessee was able to demandfrom its customers the balance of the higher prices by virtue ofretrospective revision of the prices. It, therefore, follows that atthe time of sale the goods carried a higher value and those werecleared on short-payment of duty. The differential duty was paidonly later when the assessee issued supplementary invoices to itscustomers demanding the balance amounts. Seen thus, it wasclearly a case of short-payment of duty though indeed completelyunintended and without any element of deceit, etc. The paymentof differential duty thus clearly came under sub-section (2-B) ofSection 11-A and attracted levy of interest under Section 11-ABof the Act.”

5. The same Bench in International Auto casecame to reiteratethe same view in the latter decision. The Bench also proceeded todistinguish the decision in MRF Ltd. v. Collector of Central Excise,Madras 1997 (5) SCC 104. This is what the court has laid down inregard to MRF case in paragraph 9.

“9. In our view, with the entire change in the scheme of recoveryof duty under the Act, particularly after insertion of Act 14 of2001 and Act 32 of 2003, the judgment of this Court in MRFLtd. [(1997) 5 SCC 104 : (1997) 92 ELT 309] would not apply.That judgment was on interpretation of Section 11-B of the Act,which concerns claim for refund of duty by the assessee. Thatjudgment was in the context of the price list approved on 14-5-1983. In that case, the assessee had made a claim for refund ofexcise duty on the differential between the price on the date ofremoval and the reduced price at which tyres were sold. Theprice was approved by the Government. In that case, the assesseesubmitted that its price list was approved by the Government on14-5-1983, but subsequent thereto, on account of consumer A

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Aresistance, the Government of India directed the assessee to rollback the prices to pre-14-5-1983 level and on that account, pricedifferential arose on the basis of which the assessee claimed refundof excise duty which stood rejected by this Court on the groundthat once the assessee had cleared the goods on classification,the assessee became liable to payment of duty on the date ofBremoval and subsequent reduction in the prices for whateverreason cannot be made a matter of concern to the Departmentinsofar as the liability to pay excise duty was concerned.”

6. A Bench of two learned judges who have referred the casesfelt that the MRF decision would continue to prevail, the value at theCtime of removal of the goods alone would govern the Situation which isa fundamental principle which continues to hold good till now. Theadditional duty to be paid in future cannot be treated as attracting theconcept of “short payment”. Though the differential duty may be payablebut the interest is not payable. The interest clock would start tickingDfrom the date the differential duty is due, that is, the day on which theparties agree upon the escalated price and not before. The expression“ought to have been paid” found in Section 11AB was not considered bythis Court in SKF case, it was pointed out. The Court felt that SKFCase runs contrary to the Constitution Bench decision inJK Syntheticsand interest cannot be demanded by way of damages or compensation.E

7. In our view, the following questions will fall to be decided by us:

1) Whether the decision in SKF caseand also inInternationalAutolay down the correct law having regard to the decisionof this Court in MRF case which was in fact rendered by aFBench of three Judges.

2) The effect of the judgment in JK Synthetics v. State ofRajathanas also the other judgments cited before us in regardto demand for interest under fiscal statutes.

3) Whether the determination of duty under Section 11A(2) isGnecessary to sustain the demand for interest under Section11AB of the Act.

4) The impact of Rule 7 of the Central Excise rules whichcontemplates provisional assessment.

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5) Whether payment of differential duty can be treated as aAcase of payment of duty under the head “short paid”.

6) The effect of decisions under the Income Tax Act relating toaccrual of income and the impact of accrual of income underthe Income Tax Act on the liability under Section 11AB ofthe Act having regard to the statutory scheme under the Actand the Rules.

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8. Before we proceed to deal with the matter in greater detail, wemust at once notice the following finding in the reference order passedby this Court in Steel Authority of India vs. CCE(supra):

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“21. In the first instance, he pointed out that in these appeals,there can be two distinct types of transactions:

(a) where the price of the goods is “fixed” at the time and placeof removal, and as a result of subsequent negotiations (oftenprotracted) the price is retrospectively revised by the buyer; D

(b) where the price at the time and place of removal is “notfixed” (price subject to escalation clause), and the final price isagreed between the seller and buyer subsequently.

According to him in the cases falling in the first category, eventhe differential duty is not payable. However, all these appealsfall in the second category and, therefore, we are not indulging inany discussion pertaining to the first category. We may also pointout that in all these appeals, the period in dispute (i.e. the period inwhich supplementary invoices on account of price revision wereraised) is post the introduction of the “transaction value” definitionin Section 4 of the 1944 Act but before 2010.

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22. It is a common case of the parties and even the learned counselfor the assessee admits that in non-fixed price scenario, differentialduty is liable to be paid on subsequent revision of price which theassessee had already paid the differential duty at or about thetime when revised price was agreed upon by the seller and thebuyer. The question, however, is as to whether interest thereon ispayable from the date of clearance of goods when duty was paidon the basis of invoice, till the date when differential duty waspaid.”

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ATherefore, we proceed further in this matter on the basis that theprice at the time of removal is not fixed. That is, the price is subject torevision under the escalation clause. There is also admittedly no disputeraised either before the Bench which referred the matter or before usby the learned counsel for the appellant that differential duty is indeedpayable on the subsequently revised price which is to operate withBretrospective effect.

9. At this juncture we think it apposite to refer to the facts in MRFcase (MRF Limited v. Collector of Central Excise, Madras). MRF Casewas decided on 12.3.1997 and it is reported in 1997 (5) SCC 104. Theappeal was filed in this Court against the order passed by the TribunalCdated 24.9.1986. By the impugned order the assessee’s claim for refundof excess duty paid on differential price on the date of removal and thereduced price was rejected. The case set up by the assessee was thatthe price list was approved on 14.5.1983. Subsequently, there wasresistance by the consumers. The Ministry of Commerce, GovernmentDof India, thereupon directed the manufacturer- assessee pursuant to adecision taken in a meeting of Manufacturers to bring down the pricesto the pre 14.5.1983 level. On the basis of the same a difference in theprices arose. This led to a claim for refund. The Tribunal was of theview that the prices at the time of removal alone mattered. Thesubsequent reduction in the prices for whatever reason was totallyEirrelevant. Thereafter, the court proceeded to hold as follows:

“2. We have heard the learned counsel for the assessee. Oncethe assessee has cleared the goods on the classification and priceindicated by him at the time of the removal of the goods from thefactory gate, the assessee becomes liable to payment of duty onthat date and time and subsequent reduction in prices for whateverreason cannot be a matter of concern to the Central ExciseDepartment insofar as the liability to payment of excise duty wasconcerned. This is the view which was taken by the Tribunal inthe case of Indo Hacks Ltd. V. CCE (1986) 25 ELT 69 (Trib)andit seems to us that the Tribunal’s view that the duty is chargeableat the rate and price when the commodity is cleared at the factorygate and not on the price reduced at a subsequent date isunexceptionable. Besides as rightly observed by the Tribunal thesubsequent fluctuation in the prices of the commodity can haveno relevance whatsoever so far as the liability to pay excise duty F

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M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONEROF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

is concerned. That being so, even if we assume that the roll backin the price of tyres manufactured by the appellant Company wasoccasioned on account of the directive issued by the CentralGovernment, that by itself, without anything more, would not entitlethe appellant to claim a refund on the price differential unless it isshown that there was some agreement in this behalf with theGovernment and the latter had agreed to refund the excise dutyto the extent of the reduced price. That being so, we see no meritin this appeal brought by the assessee and dismiss the same withno order as to costs.”

10. We may at once notice a feature which stands out. In theMRF caseat the time when the goods were removed, the prices werefixed and there was absolutely no occasion for the assessee or thedepartment to even contemplate a price revision either upwards ordownwards. The price was not provisional. Therefore, we would thinkthat out of the two situations which are noted in paragraph 21 of theReference Order, the first situation would be comparable to the facts ofthe decision obtaining in MRF case. In case where the price is fixedthere would be no occasion for the assessee to seek refund but here inthe case before us, admittedly the case does not fall under the firstcategory even according to the appellants. It could be said that the pricewas subject to variation based on the operation of the price escalationclause. Now the time is ripe for us to consider the statutory frameworkunder the Act and the Rules made under the Act. Section 2(h) of theAct defines sale and purchase as follows:

2(h) “sale” and “purchase”, with their grammatical variations andcognate expressions, mean any transfer of the possession of goodsby one person to another in the ordinary course of trade or businessfor cash or deferred payment or other valuable consideration.”

11. Interestingly, unlike under the definition of Sale of Goods Act,1930, “sale” under the Act takes place on transfer of possession. Howeverwe need not say anything further as it is not necessary for the cases athand. Section 3 is the charging section. With effect from 1.7.2000 underthe Finance Act of 2000, Section 4 of the Act which is crucial for ourcase reads as follows:

“4. Valuation of excisable goods for purpose of charging of dutyof excise–

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A(1) Where under this Act, the duty of excise is chargeable on anyexcisable goods with reference to their value, then, on each removalof the goods, such value shall –

(a) In a case where the goods are sold by the assessee, fordelivery at the time and place of the removal, the assessee andBthe buyer of the goods are not related and the priceis the soleconsideration for the sale, be the tansaction value; (b) In any other case, including the case where the goods arenot sold, be the value determined in such manner as may beprescribed C

(2) The provisions of this section shall not apply in respect of anyexcisable goods for which a tariff value has been fixed undersub-section (2) of section 3.

(3) For the purpose of this section,-

(a) “assessee” means the person who is liable to pay the dutyof excise under this Act and includes his agent; D

(d) “transaction value” means the price actually paid or payableEfor the goods, when sold, and includes in addition to the amountcharged as price, any amount that the buyer is liable to pay to,or on behalf of, the assessee, by reason of, or in connectionwith the sale, whether payable at the time of the sale or at anyother time, including, but not limited to, any amount chargedFfor, or to make provision for, advertising or publicity, marketingand selling organization expenses, storage, outward handling,servicing, warranty, commission or any other matter; but doesnot include the amount of duty of excise, sales tax and othertaxes, if any, actually paid or actually payable on such goods.”

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G12. Section 11A was inserted in the year 1980 and it underwentchanges. Section 11A of the Act as it stood at the relevant time read asfollows:

“11A. Recovery of duties not levied or not paid or short-levied orshot-paid or erroneously refunded– (1) When any duty of excisehas not been levied or paid or has been short-levied or short-paid H

or [erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as thecase may be, was on the basis of any approval acceptance orassessment relating to the rate of duty on or valuation of excisablegoods under any other provisions of this Act or the rules madethereunder], a Central Excise Officer may, within [one year] fromthe relevant date, serve notice on the person chargeable with theduty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously beenmade, requiring him to show cause why he should not pay theamount specified in the notice:

Provided that where any duty of excise has not been levied orpaid or has been short-levied or shot-paid or erroneously refundedby reason of fraud, collusion or any wilful mis-statement orsuppression of facts, or contravention of any of the provisions ofthis Act or of the rules made thereunder with intent to evadepayment of duty by such person or his agent, the provisions of thissub-section shall have effect [as if, {***]] for the words [oneyear], the words “five years” were substituted.

[Provided further that where the amount of duty which has notbeen levied or paid or has been short-levied or short-paid orerroneously refunded is one crore rupees or less a notice underthis sub-section shall be served by the Commissioner of CentralExcise or with his prior approval by any officer subordinate tohim:

Provided also that where the amount of duty which has notbeen levied or paid or has been short-levied or short-paid orerroneously refunded is more than one crore rupees, no noticeunder this sub-section shall be served without the prior approvalof the Chief Commissioner of Central Excise.]

(2) The [Central Excise Officer] shall, after considering therepresentation, if any, made by the person on whom notice is servedunder sub-section (1), determine the amount of duty of excisedue from such person (not being in excess of the amount specifiedin the notice) and thereupon such person shall pay the amount sodetermined.

(3) For the purposes of this section,-

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

(ii) “relevant date” means,-

[(a) in the case of excisable goods on which duty of excise hasnot been levied or paid or has been short-levied or short-paid - B

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

(B)where no periodical return as aforesaid is filed, thelast date on which such return is to be filed under thesaid rules; D

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

13. Section 11AB is undoubtedly the most crucial Section as faras this case is concerned. Section 11AB read as follows:

E“11AB.Interest on delayed payment of duty,– (1) Where anyduty of excise has not been levied or paid or has been short-leviedor shot-paid or erroneously refunded by reason of fraud, collusionor any wilful mis-statement or suppression of facts, orcontravention of any of the provisions of this Act or the rulesmade thereunder with intent to evade payment of duty, the personFliable to pay duty as determined under sub-section (2) of section11A shall, in addition to the duty, be liable to pay interest [at suchrate not below eighteen per cent, and not exceeding thirty-six percent, per annum, as is for the time being fixed by the CentralGovernment, by notification in the Official Gazette], from the firstGday of the month succeeding the month in which the duty ought tohave been paid under this Act or the rules made thereunder orfrom the date of such erroneous refund, as the case may be, butfor the provisions contained in sub-section (2) of section 11A, tillthe date of payment of such duty.

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(2) For the removal of doubts, it is hereby declared that theprovisions of sub-section (1) shall not apply to cases where theduty became payable before the date on which the Finance (No.2)Bill, 1996 receives the assent of the President.”

Explanation 1 and 2 are not extracted.

14. It is also now relevant to notice certain rules under the CentralExcise Rules, 2002. Rules 4,5,6,7 and 8 read as under:

“RULE 4. Duty payable on removal.-

(1) Every person who produces or manufactures any excisablegoods, or who stores such goods in a warehouse, shall pay theduty leviable on such goods in the manner provided in rule 8 orunder any other law, and no excisable goods, on which any duty ispayable, shall be removed without payment of duty from any place,where they are produced or manufactured, or from a warehouse,unless otherwise provided :

Proviso and Explanation omitted.

(1A)XXXXXXXXX

(2) Notwithstanding anything contained in sub-rule (1), wheremolasses are produced in a khandsari sugar factory, the personwho procures such molasses, whether directly from such factoryor otherwise, for use in the manufacture of any commodity, whetheror not excisable, shall pay the duty leviable on such molasses, inthe same manner as if such molasses have been produced by theprocurer.

(3) Omitted

(4) XXXXXXXXX

RULE 5. Date of determination of duty and tariff valuation. —

(1) The rate of duty or tariff value applicable to any excisablegoods, other than khandsari molasses, shall be the rate or value inforce on the date when such goods are removed from a factoryor a warehouse, as the case may be.

(2) The rate of duty in the case of khandsari molasses, shall bethe rate in force on the date of receipt of such molasses in thefactory of the procurer of such molasses.

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Explanation. - If any excisable goods are used within the factory,the date of removal of such goods‘ shall mean the date on whichthe goods are issued for such use.

(3) omitted.

RULE 6. Assessment of duty.- The assessee shall himself assessthe duty payable on any excisable goods:

Provided that in case of cigarettes, the Superintendent or Inspectorof Central Excise shall assess the duty payable before removalby the assessee. Provisional assessment.

RULE 7. Provisional assessment.-

(1) Where the assessee is unable to determine the value ofexcisable goods or determine the rate of duty applicable thereto,he may request the Assistant Commissioner of Central Excise orthe Deputy Commissioner of Central Excise, as the case may be,in writing giving reasons for payment of duty on provisional basisand the Assistant Commissioner of Central Excise or the DeputyCommissioner of Central Excise, as the case may be, may orderallowing payment of duty on provisional basis at such rate or onsuch value as may be specified by him.

(2) The payment of duty on provisional basis may be allowed, ifthe assessee executes a bond in the form prescribed by notificationby the Board with such surety or security in such amount as theAssistant Commissioner of Central Excise or the DeputyCommissioner of Central Excise, as the case may be, deem fit,binding the assessee for payment of difference between theamount of duty as may be finally assessed and the amount of dutyprovisionally assessed.

(3) The Assistant Commissioner of Central Excise or the DeputyCommissioner of Central Excise, as the case may be, shall passorder for final assessment, as soon as may be, after the relevantinformation, as may be required for finalizing the assessment, isavailable, but within a period not exceeding six months from thedate of the communication of the order issued under sub-rule (1):

Provided that the period specified in this sub-rule may, on sufficientcause being shown and the reasons to be recorded in writing, be extended by the Commissioner of Central Excise for a furtherperiod not exceeding six months and by the Chief Commissionerof Central Excise or Chief Commissioner of Central Excise forsuch further period as he may deem fit.

(4) The assessee shall be liable to pay interest on any amountpayable to Central Government, consequent to order for finalassessment under sub-rule(3), at the rate specified by the CentralGovernment by notification under section 11AA or Section 11ABof the Act from the first day of the month succeeding the monthfor which such amount is determined, till the date of paymentthereof.

(5) Where the assessee is entitled to a refund consequent to orderfor final assessment under sub-rule (3), subject to sub-rule (6),there shall be paid an interest on such refund as provided undersection 11BB of the Act from the first day of the month succeedingthe month for which such refund is determined, till the date ofrefund.

(6). Any amount of refund determined under sub-rule (3) shall becredited to the Fund:

Provided that the amount of refund, instead of being credited tothe Fund, be paid to the applicant, if such amount is relatable to –

(a) the duty of excise paid by the manufacturer, if he had notpassed on the incidence of such duty to any other person; or (b) the duty of excise borne by the buyer, if he had not passed onthe incidence of such duty to any other person.

RULE 8. Manner of payment .-

(1) The duty on the goods removed from the factory or thewarehouse during a month shall be paid by the 5th day of thefollowing month:

Provided that in case of goods removed during the month of March,the duty shall be paid by the 31st day of March :

Provided further that where an assessee is availing of theexemption under a notification based on the value of clearancesin a financial year, the duty on goods cleared during a calender A

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month shall be paid by the 15[th] day of the following month exceptin case of goods removed during the month of March for whichthe duty shall be paid by the 31[st] day of March.

Explanation – Not extracted

(1A)***

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(2) The duty of excise shall be deemed to have been paid for thepurposes of these rules on the excisable goods removed in themanner provided under sub-rule (1) and the credit of such dutyallowed, as provided by or under any rule.

(3) If the assessee fails to pay the amount of duty by the due date,he shall be liable to pay the outstanding amount along with aninterest at the rate of two per cent per month or rupees onethousand per day, whichever is higher, for the period starting withthe first day after due date till the date of actual payment of theoutstanding amount:

Provided that the total amount of interest payable in terms of thissub-rule shall not exceed the amount of duty which has not beenpaid by the due date:

Provided further that till such time the amount of duty outstandingand the interest payable thereon are not paid, it shall be deemedthat the goods in que3stion in respect of which the duty and interestare outstanding, have been charged without payment of duty, andwhere such duty and interest are not paid within a period of onemonth from the due date, the consequences and the penalties asprovided in these rules shall follow.

Illustrations – Not extracted

(4) The provisions of Section 11 of the Act shall be applicable forrecovery of the duty as assessed under rule 6 and the interestunder sub-rule (3) in the same manner as they are applicable forrecovery of any duty or other sums payable to the CentralGovernment.”

15. Excise duty is a duty on manufacture or production of goods.It is, however, collected at the point of removal of goods. When the dutyof excise is chargeable with reference to the value of goods, Section 4provides that on each removal of the goods, the value will be determined either under clause(a) or clause(b). We are in these cases governed byclause(a). Section (4) yields the following elements: -

(i) when the goods are sold;

(ii) for delivery;

(iii) at the time and place of removal;

(iv) the assessee (appellants in these cases are the assesses)and the buyer not being related;

(v) price is the sole consideration for the sale, then the transactionvalue will be the value for the determination of excise duty.

The price may be what is actually paid or what is payable forthe goods when sold.

Apart from what is shown as the price the transaction valuewould include:

(i) Any amount the buyer is liable to pay to the assesseebyreason of or in connection with the sale whether at the timeof the sale or any other time.

(ii) Any amount payable on behalf of the assesseeby reason ofor in connection with the sale whether at the time of sale orany other time.

(iii) The aforesaid amounts encompass certain amounts whichare specifically enumerated namely, advertising, publicity,marketing and selling, organizational expenses, storage,outward handling serving, warranty, commission or any othermatter.

16. Thus, the intent is to determine the value by not only includingthe actual price paid or payable but all amounts which are separatelyenumerated and found mention as hereinbefore.

17. Now it is time to look at the effect of the rules relevant for thepurpose of this case. Rule 4 falls under the heading ‘duty payable onremoval’. It is contemplated that duty is to be paid on the goods in themanner provided under Rule 8 or under any law. No excisable good onwhich duty is payable can be removed without payment of excise dutyunless otherwise provided. This would take us to Rule 8 as there is nocase that any other law is applicable. Rule 8 under the heading ‘manner

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Aof payment’ declares that duty on the goods removed from the factoryetc. during a month shall be paid by the 5[th] day of the following month.Removal however in the month of March will entail liability to pay by31[st] day of March. Sub-rule 3 of Rule 8 provides for liability with theassessee who fails to pay the amount by the due date. Sub rule 4 refersto liability to pay interest. It is amply clear that the expression ‘due date’Bwould be 5[th] day of the month following the month during which thegoods are removed except with regard to the goods removed during themonth of March in which case the due date would be 31[st] day of March.

18. The scheme of the rules further is that assessment is to bedone by the assessee itself by way of self-assessment and the duty paidCby the due date (see Rule 6). What is to happen when the asssessee isconfronted with a situation when it is unable to determine the value ofthe goods or find the rate of duty. Rule 7 provides the solution. Theassessee can thereunder apply giving reasons and seeking permission tomake a provisional assessment. The officer may, grant such permission.DThereupon, duty is payable on a provisional basis. The value or the ratewould be indicated by the officer in the order permitting such provisionalassessment. This is however made subject to the assessee executing abond binding the assessee to pay the difference between the duty aspayable under the final assessment and the provisional assessment. Thefinal assessment is to be made within six months from the date ofEcommunication of the order permitting provisional assessment under Rule7(1). The period can be extended by the Commissioner for six monthsand by the chief Commissioner for which there is no time limit.

Sub-rule (4) of Rule 7 is very crucial. It provides as follows:- F1)The assessee shall be liable to pay interest

2) On any amount payable based on a final assessment underRule 7(3)

3) At the rate fixed under Section 11A or Section 11B of theActG

4) From the first date of the month succeeding the month forwhich the amount is determinedtill the date of paymentthereof.

Rule 7(5) contemplates interest on refund based on the finalassessment.H

19. Now it is important that we delve upon the case of SAILbefore the Commissioner, its stand in the appeal and finally before thisCourt. As already noticed SAIL sold and cleared rails to Indian Railwaysbased on the price circular dated 24/04/2005. The transaction in questionrelated to the period 01/01/2005 to July, 2006. Later, based upon a revisedprice circular dated 20/07/2006, the prices were revised and it took effectfrom 01/01/2005. The excise duty undoubtedly in a sum of Rs. 142.78crores came to be paid by SAIL in August 2006. However, upon receiptof notice under Section 11AB of the Act calling upon it to pay more thanRs. 15 crores as interest under Section 11AB. SAIL raised variousobjections. It, in fact, contended that this is not a case of short paymentof duty as the price at the time of actual removal of goods formed thebasis for which duty was duly paid. It was not liable to pay the differentialduty. Rebutting the case of the department, it was contended that it wasnot liable to resort to provisional assessment under Rule 7. TheCommissioner however, took the view that the price which were shownoriginally by SAIL was itself provisional. It was a case where theassessee should have invoked Rule 7 and proceeded to make theprovisional assessment. In appeal before the Tribunal, the assessee-SAIL continued with its contention that it actually was not liable to paythe differential duty. The Tribunal as already noticed following thejudgment of this Court inSKF case(supra) which came to be deliveredby that time dismissed the appeal of the assessee. Before the Benchwhich referred the matters to this Bench however, the appellants havemade it clear that they are indeed liable to pay the differential duty. Wehave noticed that stand which has been expressly recorded by this Courtin paragraphs 21-22 of the reference order.

20. Much reliance has been placed by the appellants on the decisionof this Court in J K Synthetics. The first decision is the decision of thisCourt in Associated Cement. The said decision was rendered by a Benchof three learned judges. There was a cleavage of opinion. Justice E.S.Venkataramiah, as His Lordship then was wrote the majority judgment.Justice P.N. Bhagwati as His Lordship then was dissented. The casearose under the Rajasthan Sales Tax Act. The two relevant provisionsto be noticed under the statute considered by the said Bench are Sections7 and Section 11B of the Act. They read as follows:

“7. Submission of returns.-(1) Every registered dealer and suchother dealer, as may be required to do so by the assessing authority A

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by notice served in the prescribed manner, shall furnish prescribedreturns, for the prescribed periods, in the prescribed forms, in theprescribed manner and within the prescribed time to the assessingauthority:

Provided that the assessing authority may extend the date for thesubmission of such returns by any dealer or class of dealers by aperiod not exceeding fifteen days in the aggregate.

(2) Every such return shall be accompanied by a Treasury receiptor receipt of any bank authorised to receive money on behalf ofthe State Government, showing the deposit of the full amount oftax due on the basis of return in the State Government Treasuryor bank concerned. (2A) Notwithstanding anything contained insub-section (2), the State Government may by notification in theofficial Gazette require any dealer or class of dealers specifiedtherein, to pay tax at intervals shorter than those prescribed undersub-section (1). In such cases, the proportionate tax on the basisof the last return shall be deposited at the intervals specified in thesaid notification in advance of the return. The difference, if any,of the tax payable according to the return and the advance taxpaid shall be deposited with the return and the return shall beaccompanied by the treasury receipt, or receipts, of any Bankauthorised to receive money on behalf of the State Government,for the full amount of tax due shown in the return

(3) If any dealer discovers any omission, error, or wrong statementin any returns furnished by him under sub-section (1), he mayfurnish a revised return in the prescribed manner before the timeprescribed for the submission of the next return but not later.

(4) Every deposit of tax made under sub-section (2) shall bedeemed to be provisional subject to necessary adjustments inpursuance of the final assessment of tax made for any year undersection 10.”

“11-B. Interest on failure to pay tax, fee or penalty – (a) If theamount of any tax payable under sub-sections (2) and (2-A) ofSection 7 is not paid within the period allowed, or (b)If the amount specified in any notice of demand, whether fortax, fee or penalty, is not paid within the period specified in such notice, or in the absence of such specification, within 30 daysfrom the date of service of such notice, the dealer shall be liableto pay simple interest on such amount at one per cent per monthfrom the day commencing after the end of the said period for aperiod of three months and at one and a half per cent per monththereafter during the time he continues to make default in thepayments; Provided that, where, as a result, of any order under this Act,the amount, on which interest was payable under this section, hasbeen reduced, the interest shall be reduced accordingly and theexcess interest paid, if any, shall be refunded; Provided further that no interest shall be payable under thissection on such amount and for such period in respect of whichinterest is paid under the provisions of Sections 11 and 14.”

21. In Associated Cement Ltd., the majority was dealing with thecase falling under Section 11B(a). After analyzing the various provisionsthe majority took the view that not only the assessee should have paidthe tax on the basis of the return but the return must be a return which itought to have filed in law and on facts. Justice Bhagwati who dissentedhowever, took exception to this reasoning and found that such aninterpretation would raise conflicts between the provisions contained inclause (a) and clause(b) of Rule 11B. Justice Bhagwati in his dissentpointed out the anomaly behind the reasoning of the majority. In particular,we may point out that it was noticed by the learned Judge that if thereasoning of the majority is accepted, different rates of interest wouldapply at different stages. Furthermore, it was reasoned that an assesseecannot do beyond paying the tax according to the return. He cannotpossibly divine what the assessing officer will finally assess him to. Infact, in the later judgment in JK Synthetics, the Constitution Benchsubscribed to the view expressed in the dissenting judgment inACC Ltd.casewhich it accepted as laying down the correct position in law andoverruled the majority in Associated Cement Co. case. In the JKSynthetics judgment also the case arose under the Rajasthan Sales TaxAct though it arose under Section 7(2)(A). The case in AssociatedCement case fell under under Section 7(2) of the Act. What is relevantfor our purpose are two aspects. One is we must bear in mind theactual provisions of the Rajasthan tax law which fell for consideration AB

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Athat we have already set forth. We must advert to the law which hasbeen laid down in JK Synthetics. Following is the discussion:

“16. It is well-known that when a statute levies a tax it does so byinserting a charging section by which a liability is created or fixedand then proceeds to provide the machinery to make the liabilityeffective. It, therefore, provides the machinery for the assessmentof the liability already fixed by the charging section, and thenprovides the mode for the recovery and collection of tax, includingpenal provisions meant to deal with defaulters. Provision is alsomade for charging interest on delayed payments, etc. Ordinarilythe charging section which fixes the liability is strictly construedbut that rule of strict construction is not extended to the machineryprovisions which are construed like any other statute. Themachinery provisions must, no doubt, be so construed as wouldeffectuate the object and purpose of the statute and not defeatthe same. (See Whitney v. IRC [1926 AC 37 : 42 TLR 58], CIT v. Mahaliram Ramjidas [(1940) 8 ITR 442 : AIR 1940 PC124 : 67 IA 239], India United Mills Ltd. v. Commissioner ofExcess Profits Tax, Bombay [(1955) 1 SCR 810 : AIR 1955 SC79 : (1955) 27 ITR 20] and Gursahai Saigal v. CIT, Punjab[(1963) 3 SCR 893 : AIR 1963 SC 1062 : (1963) 48 ITR 1] ). Butit must also be realised that provision by which the authority isempowered to levy and collect interest, even if construed asforming part of the machinery provisions, is substantive law forthe simple reason that in the absence of contract or usage interestcan be levied under law and it cannot be recovered by way ofdamages for wrongful detention of the amount. (See BengalNagpur Railway Co. Ltd. v. Ruttanji Ramji [AIR 1938 PC 67: 65 IA 66 : 67 CLJ 153] and Union of India v. A.L. RalliaRam [(1964) 3 SCR 164, 185-90 : AIR 1963 SC 1685] ). Ourattention was, however, drawn by Mr Sen to two cases. Even inthose cases, CIT v. M. Chandra Sekhar [(1985) 1 SCC 283 :1985 SCC (Tax) 85 : (1985) 151 ITR 433] and Central ProvincesManganese Ore Co. Ltd. v. CIT [(1986) 3 SCC 461 : 1986 SCC(Tax) 601 : (1986) 160 ITR 961] , all that the Court pointed outwas that provision for charging interest was, it seems, introducedin order to compensate for the loss occasioned to the Revenuedue to delay. But then interest was charged on the strength of a B

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statutory provision, may be its objective was to compensate theRevenue for delay in payment of tax. But regardless of the reasonwhich impelled the Legislature to provide for charging interest,the Court must give that meaning to it as is conveyed by thelanguage used and the purpose to be achieved. Therefore, anyprovision made in a statute for charging or levying interest ondelayed payment of tax must be construed as a substantive lawand not adjectival law. So construed and applying the normal ruleof interpretation of statutes, we find, as pointed out by us earlierand by Bhagwati, J. in the Associated Cement Co. case [(1981)4 SCC 578 : 1982 SCC (Tax) 3 : (1981) 48 STC 466] , that if theRevenue’s contention is accepted it leads to conflicts and createscertain anomalies which could never have been intended by theLegislature.

17. Let us look at the question from a slightly different angle.Section 7(1) enjoins on every dealer that he shall furnish prescribedreturns for the prescribed period within the prescribed time to theassessing authority. By the proviso the time can be extended bynot more than 15 days. The requirement of Section 7(1) isundoubtedly a statutory requirement. The prescribed return mustbe accompanied by a receipt evidencing the deposit of full amountof ‘tax due’ in the State Government on the basis of the return.That is the requirement of Section 7(2). Section 7(2-A), no doubt,permits payment of tax at shorter intervals but the ultimaterequirement is deposit of the full amount of ‘tax due’ shown in thereturn. When Section 11-B(a) uses the expression “tax payableunder sub-sections (2) and (2-A) of Section 7”, that must beunderstood in the context of the aforesaid expressions employedin the two sub-sections. Therefore, the expression ‘tax payable’under the said two sub-sections is the full amount of tax due and‘tax due’ is that amount which becomes due ex hypothesi on theturnover and taxable turnover “shown in or based on the return”.

The word ‘payable’ is a descriptive word, which ordinarily means“that which must be paid or is due, or may be paid” but its correctmeaning can only be determined if the context in which it is usedis kept in view. The word has been frequently understood to meanthat which may, can or should be paid and is held equivalent to‘due’. Therefore, the conjoint reading of Sections 7(1), (2) and A

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A(2-A) and 11-B of the Act leaves no room for doubt that theexpression ‘tax payable’ in Section 11-B can only mean the fullamount of tax which becomes due under sub-sections (2) and (2-A) of the Act when assessed on the basis of the informationregarding turnover and taxable turnover furnished or shown inthe return. Therefore, so long as the assessee pays the tax whichBaccording to him is due on the basis of information supplied in thereturn filed by him, there would be no default on his part to meethis statutory obligation under Section 7 of the Act and, therefore,it would be difficult to hold that the ‘tax payable’ by him ‘is notpaid’ to visit him with the liability to pay interest under clause (a)Cof Section 11-B. It would be a different matter if the return is notapproved by the authority but that is not the case here. It is difficulton the plain language of the section to hold that the law envisagesthe assessee to predicate the final assessment and expect him topay the tax on that basis to avoid the liability to pay interest. Thatwould be asking him to do the near impossible.”D

22. In short, therefore, the principle may be taken to be establishedthat while levy of interest is a part of the adjective law, yet to levyinterest there must be substantive provision. Demand for interest can bemade only if the legislature has specifically intended collection of interest.We must look at the statutory provisions.

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23. In Purolator India Limited Vs. Commissioner of CentralExcise2015 (10) SCC 715, a Bench of two learned Judges was calledupon to decide the question as to whether cash discount and trade discountare to be deducted for arriving at the transaction value. The Benchwent on to consider section 4 of the Act prior to its amendment in 1973,Fafter the amendment in 1973 and also still further after the amendmentin the year 2000. After elaborate consideration of the matter, the Benchspeaking through Justice Rohinton Fali Nariman held as follows:

“14. It can be seen that the common thread running through Section4, whether it is prior to 1973, after the amendment in 1973, orafter the amendment of 2000, is that excisable goods have tohave a determination of “price” only “at the time of removal”.This basic feature of Section 4 has never changed even after twoamendments. The “place of removal” has been amended fromtime to time so that it could be expanded from a factory or anyother premises of manufacture or production, to warehouses or G

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depots wherein the excisable goods have been permitted to bedeposited either with payment of duty, or from which suchexcisable goods are to be sold after clearance from a factory. Infact, Section 4(2) pre-2000 made it clear that where the price ofexcisable goods for delivery at the place of removal is not known,and the value thereof is determined with reference to the pricefor delivery at a place other than the place of removal, the cost oftransportation from the place of removal to the place of deliveryis to be excluded from such price. This is because the value ofexcisable goods under the section is to be determined only at thetime and place of removal. Even after the amendment of Section4 in 2000, the same scheme continues. Only, Section 4(2) is interms replaced by Rule 5 of the Central Excise Valuation(Determination of Price of Excisable Goods) Rules, 2000.

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18. It can be seen that Section 4 as amended introduces the conceptof “transaction value” so that on each removal of excisable goods,the “transaction value” of such goods becomes determinable.Whereas previously, the value of such excisable goods was theprice at which such goods were ordinarily sold in the course ofwholesale trade, post-amendment each transaction is looked atby itself. However, “transaction value” as defined in sub-section(3)(d) of Section 4 has to be read along with the expression “fordelivery at the time and place of removal”. It is clear, therefore,that what is paramount is that the value of the excisable goodseven on the basis of “transaction value” has only to be at the timeof removal, that is, the time of clearance of the goods from theappellant’s factory or depot as the case may be. The expression“actually paid or payable for the goods, when sold” only meansthat whatever is agreed to as the price for the goods forms thebasis of value, whether such price has been paid, has been paid inpart, or has not been paid at all. The basis of “transaction value”is therefore the agreed contractual price. Further, the expression“when sold” is not meant to indicate the time at which such goodsare sold, but is meant to indicate that goods are the subject-matterof an agreement of sale. Once this becomes clear, what the learnedcounsel for the assessee has argued must necessarily be acceptedinasmuch as cash discount is something which is “known” at or A

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430SUPREME COURT REPORTS

Aprior to the clearance of the goods, being contained in theagreement of sale between the assessee and its buyers, and musttherefore be deducted from the sale price in order to arrive at thevalue of excisable goods “at the time of removal”.

24. No doubt, there are decisions of the High Court which followedBinMRF Ltd.[see 2007 (207) ELT 31, Punjab and Haryana] to the effectthat a subsequent reduction in prices would not entitle the assessee tolay a claim for refund. In 2010(257) ELT 369, Karnataka, the DivisionBench of Karnataka High Court distinguished the judgment of this Courtin SKF India Ltd.(supra) by noting that in the said case after the goodswere initially cleared and appropriate duty had been paid, subsequentlyCthe price escalation was due to the increase in input labour and othercosts which was determined by the All India Industrial Prices Indicesand by the Reserve Bank of India nominated by All India ElectricalManufacturer Association. In terms of the said direction, the court notedthat supplementary invoices were issued. It was noted that the assesseeDhad also paid differential price. It is undoubtedly the case of the appellantthat the SLP carried against the said judgment has been dismissed. Wenotice that this Court has given no reasons while dismissing the SLP.

25. In India Carbon Ltd. & Ors. vs. State of Assam 1997 (6) SCC479 there was delay in payment of central sale tax. The appellantsEwere called upon to pay interest of 24% per annum by the sale taxauthorities of the state of Assam under the Assam Sales Tax Act.Following the judgment of the Constitution Bench in J.K. Synthetics v.CCE (supra) among other judgments, the court inter alia went on tohold that there is no substantive provision in the Central Act requiringpayment of interest under the Central Sales Tax Act. Though SectionF9(2) was pressed into service by the Revenue and the said provision didrefer to the power to recover interest under the State Act noticing theabsence of any power to recover interest under the Central Act in respectof tax due under the Central Act, the Court took the view that interestcould not be demanded from the appellant.

GCASE LAW UNDER THE INCOME TAX ACT.

26. Appellants have sought to derive support from certainjudgments rendered by this Court under the Income Tax Act. In E.D.Sassoon & Co. Ltd. v. CIT AIR 1954 SC 470, the appellant companywhich was the managing agent of certain companies agreed to transfer H

their agencies to two companies. Amounts were received on formaldeeds of conveyance and transfer being executed in the year 1944. Theentire amount of the managing agency commission received by thetransferees were assessed by the officers as income of the transfereesfor the year 1945-1946. In appeal the contention of the transferees wasaccepted, in that it was found that commission received by them shouldbe apportioned on the proportionate basis and they were to be assessedon the commission earned during the period they had worked as managingagents of the respective companies. Proceedings were commencedagainst the appellant who were transferors’ of the commission agencyin regard to the amounts of the commission earned prior to the date ofthe respective transfers. The case of the transferor inter alia was thatno part of the commission for the broken period of 1943 was earned bythem. The contract of employment was an entire indivisible contract.The Court had to consider the connotation of the word “earned” whichwas used in Section 4 of the Income Tax Act which fell for consideration.The majority judgment inter alia held as follows:

“35. If therefore on the construction of the Managing AgencyAgreements we cannot come to the conclusion that the Sassoonshad created any debt in their favour or had acquired a right toreceive the payments from the Companies as at the date of thetransfers of the Managing Agencies in favour of the transferees no income can be said to have accrued to them. They had nodoubt rendered services as Managing Agents of the Companiesfor the broken periods. But unless and until they completed theirperformance viz. the completion of the definite period of serviceof a year which was a condition precedent to their being entitledto receive the remuneration or commission stipulated thereunderno debt payable by the Companies was created in their favourand they had no right to receive any payment from the Companies.No remuneration or commission could therefore be said to haveaccrued to them at the dates of the respective transfers.

40. It is no doubt true that the accrual of income does not muchlater depend upon its ascertainment or the accounts cast byassessee. The accounts may be made up at a much later date.That depends upon the convenience of the assessee and also uponthe exigencies of the situation. The amount of the income, profitsor gains may thus be ascertained later on the accounts being made A

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up. But when the accounts are thus made up the income, profitsor gains ascertained as the result of the account are referredback to the chargeable accounting period during which they haveaccrued or arisen and the assessee is liable to tax in respect ofthe same during that chargeable accounting period. “Thecomputation of the profits whenever it may take place cannotpossibly be allowed to suspend their accrual …”. “Thequantification of the commission is not a condition precedent to itsaccrual”. (Per Ghulam Hassan, J. in CIT v. K.R.M.T.T.Thiagaraja Chetty and Co. [24 ITR 525 at p. 534] See also IsaacHolden and Sons, Ltd. v. Commissioners of Inland Revenue[12TC 768], and Commissioners of Inland Revenue v. NewcastleBreweries Ltd.[12 TC 927] What has however got to bedetermined is whether the income, profits or gains accrued to theassessee and in order that the same may accrue to him it isnecessary that he must have acquired a right to receive the sameor that a right to the income, profits or gains has become vested inhim though its valuation may be postponed or though itsmaterialisation may depend on the contingency that the makingup of the accounts would show income, profits or gains. Theargument that the income, profits or gains are embedded in thesale proceeds as and when received by the Company also doesnot help the transferees, because the Managing Agents have noshare or interest in the sale proceeds received as such. They arenot co-sharers with the Company and no part of the sale proceedsbelongs to them. Nor is there any ground for saying that theCompany are the trustees for the business or any of the assetsfor the Managing Agents. The Managing Agents cannot thereforebe said to have acquired a right to receive any commission unlessand until the accounts are made up at the end of the year, the netprofits ascertained and the amount of commission due by theCompany to the Managing Agents thus determined.(See Commissioners of Inland Revenue v. Lebus) [(1946) 1 AER476 (Z3)”.

55. The whole difficulty has arisen because the High Court couldnot reconcile itself to the situation that the transferees had notworked for the whole calendar year and yet they would be heldentitled to the whole income of the year of account; whereas thetransferors had worked for the broken periods and yet they would be held disentitled to any share in the income for the year. If thework done by the transferors as well as the transferees duringthe respective periods of the year were taken to be the criterionthe result would certainly be anomalous. But the true test underSection 4(1)(a) of the Income Tax Act is not whether thetransferors and the transferees had worked for any particularperiods of the year but whether any income had accrued to thetransferors and the transferees within the chargeable accountingperiod. It is not the work done or the services rendered by theperson but the income received or the income which has accruedto the person within the chargeable accounting period that is thesubject-matter of taxation. That is the proper method of approachwhile considering the taxability or otherwise of income and noconsiderations of the work done for broken periods or contributionmade towards the ultimate income derived from the source ofincome nor any equitable considerations can make any differenceto the position which rests entirely on a strict interpretation of theprovisions of Section 4(1)(a) of the Income Tax Act.”

27. In Commissioner of Income Tax, Madras v. A. GajapathyNaidu, MadrasAIR 1964 SC 1653, a Bench of three learned Judgeshad to deal with the following factual scenario. The respondent hadentered into a contract with the government for supplying bread. Hewas maintaining his accounts on mercantile basis. Amount due wascredited to his account sometime later. The respondent represented tothe Government complaining that he was supplying bread at a loss.Therefore, Government directed payment of compensation for the losswhich was supplied in 1948-1949. He received a certain sum during theyear 1950-1951. This amount was included by the officer in theassessment year 1951-1952. One of the contentions of the appellantassessee was that he had received sum in respect of the contract whichwas executed in the year 1948-1949 and therefore it could not be includedin the assessment year 1951-1952. This Court proceeded on the basisthat amount received by way of compensation was taxable. It went onto consider the question whether the assessee had been assessedcorrectly in the year 1951-1952. This Court allowed the appeal and tookthe view that the respondent-assessee was correctly assessed in theyear 1951-1952. It referred the case of E.D. Sassoon & Co. Ltd. v.CIT (supra) which we have already referred to. The Court held interalia as follows:

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“8. Under this definition accepted by this Court, an income accruesor arises when the assessee acquires a right to receive the same.It is common place that there are two principal methods ofaccounting for the income, profits and gains of a business-, one isthe cash basis and the other, the mercantile basis. The latter systemof accountancy “brings into credit what is due immediately itbecomes legally due and before it is actually received; and it bringsinto debit expenditure the amount for which a legal liability hasbeen incurred before it is actually disbursed.” The book profitsare taken for the purpose of assessment of tax, though the creditamount is not realized or the debit amount is not actually disbursed.If an income accrues within a particular year, it is liable to be-,assessed in the succeeding year. When does the right to receivean amount under a contract accrue or arise to the assessee i.e.,come into existence? That depends upon the terms of a particularcontract. No other relevant provision of the Act has been broughtto our notice-for there is none- which provides an exception thatthough an assessee does not acquire a right to receive an incomeunder a contract in a particular accounting year, by some fictionthe amount received by him in a subsequent year in connectionwith the contract, though not arising out of a right accrued to himin the earlier year, could be related back to the earlier year andmade taxable along with the income of that year. But that legalposition is sought to be reached by a process of reasoning foundfavour with English courts. It is said that on the basis of propercommercial accounting practice, if a transaction takes place in aparticular year, all that has accrued in respect of it, irrespective ofthe year when it accrues, should belong to the year of transactionand for the purpose of reaching that result closed accounts couldbe reopened. Whether this principle is justified in the English law,it has no place under the Indian Income tax Act. When an Income-tax Officer proceeds to include a particular income in theassessment, he should ask himself inter alia, two questions, namely,(i) what is the system of accountancy adopted by the assessee?and (ii) if it is mercantile system of accountancy, subject to thedeemed provisions, when has the right to receive that amountaccrued? If he comes to the conclusion that such a right accruedor arose to the assessee in a particular accounting year, he shallinclude the said income in the assessment of the succeeding

assessment year. No power is conferred on the Income-tax Officerunder the Act, to relate back an income that accrued or arose ina subsequent year to another earlier year on the ground that thesaid income arose out of an earlier transaction. Nor is the questionof reopening of accounts relevant in the matter of as certainingwhen a particular income accrued or arose. Section 34 of the Actempowers the Income-tax Officer to assess the income whichescaped assessment or was under- assessed in the relevantassessment year. Subject to the provisions of the section andfollowing the procedure prescribed thereunder, he can include theescaped income and re-assess the assessee on the basis of whichthe earlier assessment was made. So too, under s. 35 of the Actthe officers mentioned therein can rectify mistakes either of theirown motion or when such mistakes are brought to their notice bya party to the proceedings. For that purpose the correct item maybe taken into consideration in the matter of assessment. But strictlyspeaking even in those cases there is no reopening of the accountsof the assessee, but a re-assessment is made or the mistake iscorrected on the basis of the actual income accrued or receivedby the assessee. We do not see any relevancy of the question ofreopening of accounts in considering the question when anassessee acquired a right to receive an amount.

The Court also held inter alia as follows:

“9……We would prefer to base our conclusion on the groundthat we cannot extend the meaning of the word “accrue” -or“arise” in s. 4(1)(b)(i) of the Act so as to take in amounts receivedby the assessee in a later year, though the receipt was not on thebasis of the right accrued in the earlier year. Such amounts are inlaw received by the assessee only in the year when they are paid.We cannot apply the English decisions in the matter of constructionof the provisions of the Indian Act, particularly when they havereceived an authoritative interpretation from this Court…”.

28. In Vikrant Tyres Ltd. v. First Income Tax Officer, Mysore2001(3) SCC 76 under an assessment order under the Income Tax Act,1961 the appellant assessee paid the tax. On his appeal being allowedthe tax was refunded. The High Court reversed the Appellate order.On fresh demands being made the assessee repaid the tax as assessedand demanded. The revenue demanded payment of interest under Section AB

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A220(2) of Income Tax Act, 1961 for the period commencing with therefund of the tax. This Court allowed the appeal filed by the assesseeand took the view that no tax could be levied or imposed by an act ofParliament without the words “clearly disclosing such an intention”.Finding there was no default in payment within the time by the assesseeit was found that invocation of Section 220 was misplaced. This CourtBpurported to follow the decision in V.V.S. Sugars vs. Govt. of A.P. andOthers 1999(4) SCC 192(India Carbon vs. VBS Sugar). The lastjudgment we would advert to under the Income Tax Act was renderedby one among us (Chief Justice Ranjan Gogoi) and the decision is P.G.& W. Sawoo (P) Ltd. v. CIT& Ors. 2017(13) SCC 284. The facts ofCthe said case in a nutshell was as follows:

The assessee had let out its premises to the Government. Therent was enhanced with effect from 01.9.1987. The factum ofenhancement was communicated to the assessee by letter dated29.3.1994. The Income Tax Officer purported to reopen the assessmentDfor the year 1989-1990. The Court relying upon the judgment in E.D.Sassoon & Co. Ltd. v. CIT (Supra) inter alia held as follows:

“7. Viewed from the aforesaid perspective, it is clear that no suchright to receive the rent accrued to the assessee at any point oftime during the assessment year in question, inasmuch as suchEenhancement though with retrospective effect, was made only inthe year 1994. The contention of the Revenue that the enhancementwas with retrospective effect, in our considered view, does notalter the situation as retrospectivity is with regard to the right toreceive rent with effect from an anterior date. The right, however,came to be vested only in the year 1994.”F29. It was accordingly found that the notice to reopen theassessment for the assessment year 1989-1990 was without jurisdiction.

30. We are of the view that the appellants are not justified inseeking to derive support from the judgments rendered by this CourtGunder the Income Tax Act. The impact of taxing of income under theIncome Tax Act would not be apposite for considering the question whicharises in these cases which is whether interest can be levied under Section11AB of the Act in respect of the amounts which are short paid or shortlevied inter alia. Even it be that for the purpose of the Income Tax Act,it is only when on the basis that party agreed to escalation in price on aH

date which is after the date of the removal of goods rendering it exigibleto income tax on a later date, it would be irrelevant for the purpose ofdeciding the liability to pay interest in terms of the clear provisions of theAct.

31. Now we may advert to the judgment of this Court in E.I.D.Parry (India) Ltd. v. CCT2005 (4) SCC 779. The appellant thereinwas a manufacturer of sugar. The minimum price of sugarcane whichthey purchased from farmers was payable immediately. Under Clause5A of the Sugarcane (Control) Order 1966, additional price was payablewhich would be determined only at the end of the year. On the adviceof the Government the manufacturer paid the additional price as advanceat the time of purchase from the farmers and it was subsequently adjustedunder Clause 5A. In proceedings under the Tamil Nadu General SalesTax Act 1959, the assessee showed the turnover on the basis of minimumprice and paid tax thereon. It did not pay tax on the additional pricewhich has been paid but it was included in the turnover. When the pricewas fixed under Clause 5A, the appellant filed revised return and paidtax. Interest was sought to be charged under Section 24(3) on the pricefixed under Clause 5A from the date of purchase of sugarcane till thepayment of tax. The appellants contended before this Court that theprice determined under Clause 5A would be known only after it wasdetermined. Only then the same would be includable in the returns.The advances given on advice from Government were merely ad hocpayments and did not constitute the price.

32. Under the Tamilnadu Sales Tax Act, the dealers were givenan option to pay tax in advance on the basis of monthly return. UnderSection 13(1) which provided for advance payment of tax, the tax couldbe collected in advance in monthly or prescribed instalment. Theassessing authority could provisionally determine the amount, payable inadvance and intimate the dealer to pay the tax. Sub-section (2) of Section13 provided that the dealer may at his option pay tax in advance on thebasis of his actual turnover for each month or for such other period asprescribed. Tax under this provision was to be paid on the basis ofreturn to be filed by him. It was also to become due without any noticeof demand to the dealer inter alia. The Court proceeded to take theview that in the monthly returns, the advance which was received by theassessee should have been included as part of the turnover. When itcame to the question relating to liability to interest, the Court referred to A

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ASection 24 of the Act. Section 24(3) provided for interest. It read asfollows:

“(3) On any amount remaining unpaid after the date specified forits payment as referred to in sub-section (1) or in the orderpermitting payment in instalments, the dealer or person shall pay,in addition to the amount due, interest at one-and-half per centper month of such amount for the first three months of defaultand at two per cent per month of such amount for the subsequentperiod of default:

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Provided that if the amount remaining unpaid is less than onehundred rupees and the period of default is not more than a month,no interest shall be paid:

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Provided further that where a dealer or person has preferred anappeal or revision against any order of assessment or revision ofassessment under this Act, the interest payable under this sub-section, in respect of the amount in dispute in the appeal or revision,shall be postponed till the disposal of the appeal or revision, as thecase may be, and shall be calculated on the amount that becomesdue in accordance with the final order passed on the appeal orrevision as if such amount had been specified in the order ofassessment or revision of assessment, as the case may be.”

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33. Thereafter, the Court in E.I.D. Parry (India)Ltd. V. Asst.Commercial of Commercial Taxes, Chennai held as follows:

“….Under Section 24(1) if the tax has been assessed or hasbecome payable under the Act, then the payment has to be madewithin the said time as may be specified in the notice of assessmentand tax under Section 13(2) has to be paid without any notice ofdemand. However, as seen above, the tax under Section 13(2), inthe absence of any determination by the assessing authority, istax as per the returns. If default is made in payment of such taxthen interest becomes payable under the Act. In the present case,it is an admitted position that tax as per the monthly return hadbeen paid within time. It is also an admitted position that therewas no assessment, even provisional, by the assessing authorityprior to the final assessment made after the revised returns hadbeen filed. Interest becomes payable under Section 24(3) on an F

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amount remaining unpaid after the date specified for its paymentunder sub-section (1) of Section 24. As seen above, sub-section(1) of Section 24 deals with an assessed tax or tax which hasbecome payable under the Act. In cases covered by Section 13(2)tax must be paid without any notice of demand. But as statedabove, under Section 13(2) tax is to be paid “on the basis of suchreturns”. Tax as per the returns has admittedly been paid. If thereturns were incomplete or incorrect as now claimed the assessingauthority had to determine the tax payable and issue a notice ofdemand. In the absence of any assessment, even provisional, anda notice of demand no interest would be payable under Section24(3). …”

34. Section 24(1) incidentally provided for a notice of assessmentsave as it was otherwise provided in Section 13(2). The tax under Section13(2) was to be paid without any notice of demand. The Court drewsupport from the decision in JK Synthetics Ltd. (supra). We may alsonotice the following discussion:

“..In this respect the principles laid down in J.K. Synthetics Ltd.case [(1994) 4 SCC 276] fully apply even though the provisionsof the Tamil Nadu General Sales Tax Act and the Rajasthan Actmay not be identical. The principle to be kept in mind is, that,when the levy of interest emanates as a statutory consequenceand such liability is a direct consequence of non-payment of tax,be it under Section 215 of the Income Tax Act or under Sections7(2)/7(2-A) read with Section 11-B(a) of the Rajasthan SalesTax Act, 1954 (as discussed in the decision of this Court in J.K.Synthetics Ltd. case [(1994) 4 SCC 276] ) or under Sections13(2)/24(3) read with Rule 18(3) under the Tamil Nadu GeneralSales Tax Act, 1959, then such a levy is different from the levy ofinterest which is dependent on the discretion of the assessingofficer. The default arising on non-payment of tax on an admitted-liability in the case of selfassessment falls under Section 24(3)read with Rule 18(3) which attracts automatic levy of interestwhereas the default in filing incomplete and incorrect return falls-under Rule 18(4) which attracts bestjudgment assessment inwhich the levy of interest is based on the adjudication by theassessing officer. Therefore, Rule 18(3) and Rule 18(4) operatein different spheres…”

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A35. We are of the view that the scheme of the Central Excise Actand the Rules are a separate code. Section 11A is a provision forrecovery. If there is a non-levy, non-payment, short-levy or short-payment, the same becomes recoverable under Section 11A. If there isany of the four contingencies referred to in Section 11A, then Section11AB is attracted. The working of the parent Act is intricately intertwinedBwith the rules, the scope of which we have already referred to. Therefore,if the value which is declared by way of self-assessment, by way of rule6 and on which the duty is paid is not the full value then under thescheme of Section 11A read with Section 11AB and the Rules, theassessee incurs liability for interest when in a case where there is fullCvalue found and it dates back to the date of removal.

36. We have noticed that in this case admittedly that at the timegoods were removed the price was not fixed. The assessee was fullyconscious of the fact that it was subject to variation. Assessee must beimputed with knowledge that the value it was declaring was amenableDto upward revision. The circumstances were indeed clearly both appositeand appropriate for the assessee to invoke the provisions of Rule 7 andseek an order for provisional assessment. In fact, take the example ofmanufacturer A and manufacturer B. Both remove goods under contractswhich contain escalation clauses. Manufacturer A invokes Rule 7. Itseeks permission for removal of goods on provisional assessment.EThough an order of final assessment has to be passed within a period oftime it is capable of being extended without any time limit. Manufacturer-A on the basis of upward revision of the price with retrospective effectand acknowledging the value to be the value as provisionally assessedand as enhanced by the escalation arrived at under the escalation clauseFpays the duty when the escalation comes into effect on the difference inthe value under Rule 7. Apart from payment of the differential exciseduty manufacturer A becomes also liable to pay interest from the datewhen the escalation would come into play on the arrival at the higherprice having retrospective operation. Manufacturer B in identical factsclears the goods on the basis of self-assessment even though he is fullyGaware that the value of the goods which is paid is not fixed and isamenable to upward revision. He deliberately chooses not to go in forprovisional assessment. Thereafter, he pleads that though he was awarethat the value is not fixed and the prices on removal was tentative andwas amenable to change since he has paid duty on the tentative value he H

is not liable to pay interest on the value of the goods on the differentialduty which he is admittedly liable to pay. Is it contemplated?

37. It was by Act No.26 of 1978 that Sections 11A, 11B and 11Cwere inserted in the Act. Though it was inserted by Act 26 of 1978, itwas brought into force only in 1980. The words “levy, not paid, shortlevy and erroneously refunded” were not expressions which werehowever introduced for the first time through Section 11A. Rule 10 ofthe Central Excise Rules 1944 made under the Act as it read was asfollows:

“10. Recovery of duties not levied or not paid, or short-leviedor not paid in full or erroneously refunded.—(1) Where anyduty has not been levied or paid or has been short-levied orerroneously refunded or any duty assessed has not been paid infull, the proper officer may, within six months from the relevantdate, serve notice on the person chargeable with the duty whichhas not been levied or paid, or which has been short-levied, or towhom the refund has erroneously been made, or which has notbeen paid in full, requiring him to show cause why he should notpay the amount specified in the notice:

Provided that—

(a) where any duty has not been levied or paid or has been short-levied or has not been paid in full, by reason of fraud, collusion orany wilful misstatement or suppression of facts by such person orhis agent, or (b) where any person or his agent, contravenes any of theprovisions of these rules with intent to evade payment of duty andhas not paid the duty in full, or

(c) where any duty has been erroneously refunded by reason ofcollusion or any wilful misstatement or suppression of facts bysuch person or his agent, the provisions of this sub-section shall,in any of the cases referred to above, have effect as if for thewords ‘six months’, the words ‘five years’ were substituted.

Explanation.—Where the service of the notice is stayed by anorder of a court, the period of such stay shall be excluded incomputing the period of six months, or five years, as the casemay be.

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(2) The Assistant Collector of Central Excise shall, afterconsidering the representation, if any, made by the person on whomnotice is served under sub-rule (1), determine the amount of dutydue from such person (not being in excess of the amount specifiedin the notice) and thereupon such person shall pay the amount sodetermined.

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(3) For the purposes of this rule,—

(i) ‘refund’ includes rebate referred to in Rules 12 and 12-A;

(ii) ‘relevant date’ means,—

(a) in the case of excisable goods on which duty of excise has notbeen levied or paid or on which duty has been short-levied or hasnot been paid in full, the date on which the duty was required tobe paid under these rules; C

(b) in the case of excisable goods on which the value or the rateof duty has been provisionally determined under these rules, thedate on which the duty is adjusted after final determination of thevalue or the rate of duty, as the case may be; D

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

E38. Thus, Rule 10 did provide for recovery of duties which werenot levied or not paid or short levied or erroneously refunded. What isthe position as far as the expression short paid to be found in Section11A of the Act is concerned? Was there a counterpart in Rule 10? Aperusal of Rule 10 would show that the expression ‘short paid’ as suchwas not used in Rule 10 as it is used in Section 11A. However, weFnotice that Rule 10 did contemplate recovery of duties which wasassessed but have not been paid in full.

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39. Before we proceed to pronounce on the scope of the expression‘short paid’ in Section 11A, we deem it appropriate also to refer to Rules173-B and 173-C of the Central Excise Rules, 1944. The relevantGprovisions thereof read as follows:

“173-B. Assessee to file list of goods for approval of the properofficer.—(1) Every assessee shall file with the proper officer forapproval a list in such form as the Collector may direct, inquintuplicate, showing—

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(a) the full description of — (i) all excisable goods produced ormanufactured by him, (ii) all other goods produced ormanufactured by him and intended to be removed from his factory,and (iii) all the excisable goods already deposited or likely to bedeposited from time to time without payment of duty in hiswarehouse; (b) the Chapter, Heading No. and Sub-Heading No., if any, of theSchedule to the Central Excise Tariff Act, 1985 (5 of 1986) underwhich each such goods fall;

(c) the rate of duty leviable on each such goods; and (d) such other particulars as the Collector may direct.

(2) The proper officer shall, after such inquiry as he deems fit,approve the list with such modifications as are considerednecessary and return one copy of the approved list to the assesseewho shall, unless otherwise directed by the proper officer,determine the duty payable on the goods intended to be removedin accordance with such list.

(2-A) All clearances shall, subject to the provisions of Rule 173-CC, be made only after the approval of the list by the properofficer. If the proper officer is of the opinion that on account ofany inquiry to be made in the matter or for any other reason to berecorded in writing, there is likely to be delay in according theapproval, he shall, either on a written request made by the assesseeor on his own accord, allow such assessee to avail himself of theprocedure prescribed under Rule 9-B for provisional assessmentof the goods.

(3) Where the assessee disputes the rate of duty approved by theproper officer in respect of any goods, he may, after giving anintimation to that effect to such officer, pay duty under protest atthe rate approved by such officer.

(4) If in the list approved by the proper officer under sub-rule (2),any alteration becomes necessary because of—

(a) the assessee commencing production, manufacture orwarehousing of goods not mentioned in that list, or A

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(b) the assessee intending to remove from the factory any non-excisable goods not mentioned in that list, or

(c) a change in the rate or rates of duty in respect of the goodsmentioned in that list or, by reason of any amendment to theSchedule to the Central Excise Tariff Act, 1985 (5 of 1986), achange in the Chapter, Heading No. and Sub-Heading No.

the assessee shall likewise file a fresh list or an amendment of thelist already filed for the approval of such officer in the same manneras is provided in sub-rule (1).

(5) When the dispute about the rate of duty has been finalized orfor any other reasons affecting rate or rates of duty, a modificationof the rate or rates of duty is necessitated, the proper officer shallmake such modification and inform the assessee accordingly.

(6) The Collector may exempt by a general order any class ofassessees, who manufacture wholly goods which, for the timebeing, are exempt from paying duty, from filing the list under sub-rule (1): Provided that as and when duty exemption is withdrawnor modified or no longer applicable, the assessee shall complywith the provisions of sub-rule (4) as if he had filed a list earlierand the list had been approved with ‘nil’ rate of duty. 173-C. Assessee to file price list of goods assessable ad valorem.—

(1) Every assessee who produces, manufactures or warehousesgoods which are chargeable with duty at a rate dependent on thevalue of the goods, shall file with the proper officer a price list, insuch form and in such manner and at such intervals as the Collectormay require, showing the price of each of such goods and thetrade discount, if any, allowed in respect thereof to the buyersalong with such other particulars as the Central Board of Exciseand Customs or the Collector may specify.

(2) Prior approval by the proper officer of the price list filed by anassessee under sub-rule(1) shall be necessary only, where theassessee—

(i) sells goods to or through a related person as defined in Section4 of the Act; or

(ii) uses such goods for manufacture or production of other goodsin his factory; or

(iii) clears such goods for free distribution; or

(iv) clears such goods in any other manner which does not involvesale to a non-related person; or

(v) clears the goods of the same kind and quality from his factorieslocated in the jurisdiction of different Collectors of Central Exciseor Assistant Collectors of Central Excise; or

(vi) submits a fresh price list or an amendment of the price listalready filed with the proper officer and which has the effect oflowering the existing value of the goods.

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(5) Subject to the provisions of Rule 173-CC, an assessee specifiedin sub-rule (2) shall not clear any goods from a factory, warehouseor other approved place of storage unless the price list has beenapproved by the proper officer. In case the proper officer is ofthe opinion that on account of any enquiry to be made in the matteror for any other reasons to be recorded in writing, there is likely tobe delay in according approval, he shall either on a written requestmade by the assessee or of his own accord allow such assesseeto avail himself of the procedure prescribed under Rule 9-B forprovisional assessment of the goods.”

40. We have already noticed that the new Central Excise Ruleshave come into force known as Central Excise Rules 2002. Under Rule173-B of the erstwhile Rules, the method of assessment and payment oftax was essentially by the assessee filing a classification list under Rule173-B which inter alia was to contain the rate of duty leviable. TheRule further contemplated approval of the said list with any modificationas may be considered necessary. The clearance was, subject to theprovision of Rule 173-CC, to be made only after the approval by thecompetent officer. Equally under rule 173(C), the assessee, themanufacturer or producer or one who warehoused goods chargeablewith duty on the value of goods was to file a price list. Prior approvalwas necessary only in certain circumstances which included sale to orthrough related person as defined in Section 4 of the Act. Under Sub-rule 5 of Section 173-C again subject to the provisions of Rule 173CC,the assessee covered by Rule 173C(2) could not clear any goods from afactory, warehouse or other approved place of storage unless the price A

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Alist was approved. Under the new dispensation namely, Excise Rule2002, we have noticed that assessment was based on the value and therate of tax as declared by the assessee.

41. In the context of Rule 173B and 173C, questions have arisenbefore this Court as to the effect of notice issued under Rule 10 of theBExcise Rules, 1944 when the approved classification was sought to bereopened. The Assistant Collector sought to revise the net assessablevalue and recover the differential duty. A Bench of two learned Judgesheld in Rainbow Industries (P) Ltd. v. CCE(1994)6 SCC 563, thatonce the price list was approved and acted upon this reclassificationwould be effective from the date of issue of the show cause notice. ACBench of three learned Judges in Balarpur Industries Ltd. v. AssistantCollector of Customs and Central Excise & Ors. (1995) Supplement3 SCC 429, sought to confine the aforesaid judgment to the facts of thecase. Finally, the matter was considered by a Constitution Bench in thecase of Collector of Central Excise, Baroda v. Cotspun Ltd.reportedDin (1999) 7 SCC 633. This Court approved the view taken in RainbowIndustries (supra) and it disapproved of Balarpur Industries noticing thatit did not advert to Rule 173-B. In the course of judgment, the Courtinter alia held as follows:

“12. Rule 173-B deals with classification lists. It entitles the properEofficer of Excise to make such enquiry thereon as he deems fitand requires him to approve the list only thereafter, and that withsuch modifications as are considered necessary. The assesseemust determine the excise duty that is payable by him on thegoods he intends to remove in accordance with the approvedclassification list. Sub-rule (5) provides for modification of anFapproved classification list.

13. Rule 10 is a provision for recovery of duties that have notbeen levied or paid in full or part. So far as is relevant for ourpurposes, it provides that where any duty has been short-levied,the Excise Officer may, within six months from the relevant date,Gserve notice on the assessee requiring him to show cause why heshould not pay the amount that had been short-levied. Rule 10does not deal with classification lists or relate to the reopening ofapproved classification lists. That is exclusively provided for byRule 173-B.

14. The levy of excise duty on the basis of an approvedclassification list is the correct levy, at least until such time as tothe correctness of the approval is questioned by the issuance tothe assessee of a show-cause notice. It is only when thecorrectness of the approval is challenged that an approvedclassification list ceases to be such.

15. The levy of excise duty on the basis of an approvedclassification list is not a short levy. Differential duty cannot berecovered on the ground that it is a short levy. Rule 10 has then noapplication.”

42. A Bench of two learned Judges in the case of M/s. EastlandCombines, Coimbatore v. Collector of Central Excise, Coimbatorereported in AIR 2003 SC 843 after noticing the judgment in BallarpurIndustries, Rainbow and also noticing the change brought about by theFinance Act 10 of 2000 in Section 11A, proceeded to take the view thatin view of the amendment, the basis for arriving at the conclusion thatRule 10 does not deal with classification list or relate to the reopening ofclassification list is altered and the conditions on whichCotspun(supra)judgment was rendered in (1999)7 SCC 633 was fundamentally altered.The view taken in M/s. Eastland Combines, Coimbatore(supra) cameto be doubted by another Bench of two Judges. Consequently, again itwas referred to a Bench of three learned Judges and the referencecame to be answered in the decision reported in ITW Signod IndiaLimited vs. Collector of Central Excisereported in (2004) 3 SCC 48.Thereunder, the Court, after referring to the 1994 Rules, Section 11Awhich was introduced in the Act, the amendment which was broughtabout by Section 97 of the Finance Act, 2000, found that Section 11A, asamended by the Finance Act, 2000 brought about a completely differentsituation in the course of the judgment of the Court held inter alia asunder:

“55. Section 11-A deals with a case when inter alia excise dutyhas been levied or has been short-levied or short-paid. The word“such” occurring after the words “whether or not” refers to non---levy, nonpayment, shortlevy or short payment or erroneousrefund. It is, therefore, not correct to contend that the word “such”--indicates only such shortlevy which has been held to be non A

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existent in Cotspun [(1999) 7 SCC 633] having regard to Rule173-B. Such short-levy or non-levy may be on the basis of anyapproval, acceptance or assessment relating to the rate of dutyon or valuation of excisable goods. Thus, any approval made interms of Rule 10 (sic 173-B), in the event, any mistake therein isdetected, would also come within the purview of the expression“such short-levy or short payment”.Such notice is to be servedon the person chargeable with the duty which inter alia has beenshort-levied or short-paid.”

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57. The procedure laid down under Rule 173-B of the Rules hasspecifically been included in the Act. Furthermore, by reason ofthe amended Act a provision has been made for reopening theapproved classification lists. It is a procedural provision, in termswhereof statutory authorities are required to determine as towhether the earlier classification was correctly done or not. Thesaid authority upon giving an opportunity of hearing to the partiesmay come to the conclusion that decision on the approval grantedneed not be reopened and even if the same is reopened, the reasonstherefor are to be stated. As the provision of Section 11-A is a---recovery provision as regards nonlevy or nonpaid or shortlevyor short-paid or erroneously refunded duties by reason of the saidamendment, Parliament had merely provided that an approval onthe basis of a classification list inter alia in case of a short-levycan be recovered if a finding is arrived at that the goods had-undergone a shortlevy.For the aforementioned purpose, Section110 of the Finance Act, validating actions taken under Section 11-A can be taken into consideration whereby and whereunder alegal fiction is created.”

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(Emphasis supplied)

43. Section 11A, thus, was held to be a recovery provision asregards non-levy, non-paid, short-levy, short-paid or erroneously refundedduty. Levy of excise duty under Rule 10 of the Excise Rules, 1944 onGthe basis of approved classification list or price list was found to becorrect levy. It did not give rise to short-levy. Undoubtedly, the amendedprovisions of Section 11A empowered recovery of duty even in a casewhere the classification list has been approved earlier and it would operatefrom the date of removal and not from the date on which show causewas issued.H

44. In the case of N.B. Sanjana, Assistant Collector of CentralExcise, Bombay & Ors. v. The Elphinstone Spinning andWeaving Mills Co. Ltd.; 1978 E.L.T. (J 399), the contention ofthe assessee was that neither Rule 9 nor Rule 10A (1944 Rules)gave power to the Revenue to raise the demand notice involvedin the said case. The demand had to be made if at all under Rule10 and the demand having been made long after three months,contrary to what was prescribed in the said Rule, the notices wereillegal and void. The court inter alia held as follows:- “14. We arenot inclined to accept the contention of Dr. Syed Mohammad thatthe expression ‘levy’ in Rule 10 means actual collection of someamount. The charging provision Section 3(i) specifically says“There shall be levied and collected in such a manner as may “be-prescribed the duty of excise. It is to be noted that Subsection (i)uses both the expressions “levied and collected” and that clearlyshows that the expression “levy” has not been used, in the Act orthe Rules as meaning actual collection.Dr. Syed Mohammad is,no doubt, well founded in his contention that if the appellants havepower to issue notice either under Rule 10A or Rule 9(2), the factthat the notice refers specifically to a particular rule, which maynot be applicable, will not make the notice invalid on that groundas has been held by this Court in J.K. Steel Ltd. v. Union of India(1969) 2 SCR 418 = (AIR 1970 SC 1173).

“If the exercise of a power can be traced to a legitimate source,the fact that the same was purported to have been exercisedunder a different power does not vitiate the exercise of the powerin question. This is a well settled proposition of law. In thisconnection reference may usefully be made to the decisions ofthis Court in B. Balakotaiah v. The Union of India: [1958]SCR1052 = (AIR 1958 SC 232); and Afzal Ullah v. State of U.P.[1964]4SCR 991 = (AIR 1964 SC 264).

The Court further proceeded to held as follows:- “18. This now takes us to the question of proper interpretation tobe placed on the expression “short-levied” and “paid” in Rule 10.Does the expression“short-levied” mean that some amount shouldhave been levied as duty as contended by Dr. Syed Mohammador will that expression cover even cases where the assessment is A

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of ‘nil duty’, as contended by Mr. Daphtary. What is the meaningof the word “paid” in Rule 10 ? It is contended on behalf of theappellants that it means “actually paid”, whereas, according tothe respondents, it means “ought to have been paid”. Taken literally,the word “paid” does mean actually paid in cash. That means thata party or an assessee must have paid some amount of dutywhatever may be the quantum. If this literal interpretation is placedon the expression “paid” in rule it is needless to state that it willsupport in a large measure the contention of Dr. Syed Mohammad-that Rule 10 contemplates a shortlevy in the sense that the amountwhich falls short of the correct amount has been assessed andactually paid. In our opinion, the expression “paid” should not beread in a vacuum and it will not be right to construe the said wordliterally, which means actually paid. That word will have to beunderstood and Interpreted in the context in which it appears inorder to discover its appropriate meaning. If this is appreciatedand the context is considered it is apparent that there is an ambiguityin the meaning of the word “paid”. It must be remembered thatRule 10 deals with recovery of duties or charges short levied orerroneously refunded.The expression “paid” has been used todenote the starting point of limitation of three months for the issueof a written demand. The Act and the Rules provide in greatdetail the stage at which and the time when the excise duty is tobe paid by a party. If the literal construction that the amount shouldhave been actually paid is accepted, then in case like the presentone on hand, when no duty has been levied, the Department willnot be able to take any action under Rule 10. Rule 10-A cannot-apply when a shortlevy is made through error or misconstructionon the part of an officer, as such a case is specifically provided byRule 10. therefore, in our opinion, the proper interpretation to beplaced on the expression “paid” is “ought to have been paid”.Such an interpretation has been placed on the expression “paid”occurring in certain other enactments as in Gursahai Saigal v.Commissioner of Income-tax, Punjab [1963] 3 SCR 893 = (AIR1963 SC 1062), and in Allen v. Thorn Electrical Industries Ltd.(1968) 1 QB 487. In (1963) 3 SCR 893 = (AIR 1963 SC 1062, thequestion arose as follows: In certain assessment proceedings underthe Indian Income-tax Act, 1922, an assessee was charged withinterest Under Sub-section (8) of Section 18A of that Act Under that Sub-section interest calculated in the manner laid down inSub-section (6) of Section 18A was to be added to the taxassessed. Sub-section 3 of Section 18A dealt with cases of aperson who has not been assessed before and he was required tomake his own estimate of the tax payable by him and payaccordingly. Sub-section (3) of Section 18A was applicable to theassessee in that case. However, he neither submitted any estimatenor did he pay any advance tax. Under Sub-section (6) ofSection 18A it was provided:

“Where in any year an assessee has paid tax Under Sub-section(2) or Sub-section (3) on the basis of his own estimate,and the tax so paid is less than eighty percent of the taxdetermined on the basis of regular assessment simple interestat the rate of six per cent per annum from the 1st day ofJanuary in the financial year in which the tax was paid up tothe date of the said regular assessment shall be payable by theassessee upon the amount by which the tax so paid falls shortof the said eighty percent.”

“25. We may point out that if the contention of Dr. SyedMohammad that in order to constitute short-levy, some amountshould have been assessed as payable by way of duty so as tomake Rule 10 applicable, is accented the result will be ratheranomalous. For instance if due to collusion (which means collusionbetween a party and an officer of the Department) a sum of Rs.2/-is managed to be assessed by way of duty when really morethan thousand times that amount is payable and if the smalleramount of duty so assessed has been paid, the Department willhave to take action within three months for payment of the properamount of duty. On the other hand, if due to collusion again anorder of nil assessment is passed, in which case no duty wouldhave been paid, according to the appellants Rule 10A will apply.We do not see any reason to distinguish the above two cases onefrom the other. Both are cases of collusion and if an assessee incollusion manages to have a petty amount of duty assessed andpaid he can effectively plead limitation of three months underRule 10. Whereas in the same case of collusion where no dutyhas been levied there will be no period of limitation. In our opinion,that will not be a proper interpretation to be placed on Rule 10A

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Aby us. By the interpretation placed by us on Rule 10, the positionwill be that an assessee who has been assessed to a smalleramount as well as an assessee who has been assessed to nil dutywill all be put on a par and that is what is intended by Rule 10.”

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45. In fact, it is to be noticed, that Section 11A which was insertedby Act 26 of 1978 is substantially the reproduction of Rule 10 of 1944Rules. We notice, in fact, the following answers given by Shri SatishAggarwal, the Minister of State in the Ministry of Finance, as regards,the reasons for Act 26 of 1978 by which Section 11A was inserted:- C

“Shri Amrit Nahata made a frontal attack on clause 24 and asked,why are you going to increase the limit with regard to short levyfrom six months to five years? Previously, there was no limit. Itwas only in August 1977 that the rules were amended and provisionmade in the rules to fix a time limit in the case of fraud. Earlier, aDcase could be reopened even after 20 years in the case of fraud.In 1977 the rules prescribed a time limit of five years in the caseof fraud. Otherwise, the period was unlimited. When we limitedthe period to five years, the Committee on Subordinate Legislationrecommended that instead of incorporating such an importantprovision in the rules it should find a place in the Act itself. That isEwhy we have brought in this amendment to the Act. Otherwise,since those rules were laid on the Table of the House by implicationthey were approved by the House without any amendment. So,that is more or less the law now. We are only incorporating it inthe Act, as recommended by the Committee on SubordinateFLegislation.”

46. It is apparently thus that Section 11A came to be inserted.

46. It is apparently thus that Section 11A came to be inserted.

47. Coming to Section 11AB, it came to be inserted by Act 33 of1996. Thereafter, it was amended by Act 10 of 2000, Act 14 of 2001,Act 20 of 2002 and Act 49 of 2005. We have already extracted theGrelevant provisions of the said section. Section 11A must necessarily beread with Section 11AB. This is for the reason that interest under Section11AB is premised upon the duty of excise not being levied or paid orshort levied, short paid or erroneously refunded. Such duty is eitherdetermined under sub-Section(2) of Section 11A or without suchdetermination it being paid under Section 2B of Section 11A. In any ofH

the circumstances, namely, non-levy, non-payment, short-levy and short-paid, any duty has been determined or paid as has been provided underSection 11A, necessarily the assessee becomes liable to pay interestfrom the first date of the month succeeding the month in which dutyought to have been paid.

48. The question which we are necessarily called upon to decideis when price is revised upward with retrospective effect and the exciseduty on the same is paid immediately on a future date whether interestis payable under Section 11AB from the first day of the month succeedingthe month in which the duty ought to have been paid under the Act. Tokeep the matter in focus, the exact question is which is the month inwhich the duty ought to have been paid.

49. Under the Rules, goods become exigible to duty on removal.Assessment is to be done by assessee itself by way of self-assessment.In a case where duty is payable on the basis of the value, the assesseeis to apply the rate of duty to the value and pay the duty on or before thesixth day of the month succeeding the month in which removal of thegoods takes place. Undoubtedly, if the removal takes place in March,the payment is to be made by 31[st] of March.

50. We have also noticed what happens if there is provisionalassessment. In the case of provisional assessment, the assesseeentertains a doubt regarding the actual value or the rate of duty. Heapplies and he is permitted under the order to remove goods on aprovisional assessment. The assessment is thereafter finalized. Whenthe provisional assessment is finalized, the assessee becomes liablehowever to pay interest from the first date of the month succeeding themonth for which the amount is determined. We have no doubt in ourmind that under Rule 7(4), the expression “succeeding the month forwhich such amount”is determined refer to the month of removal of thegoods. When the provisional assessment has such consequences, itwould occasion an invidious discrimination to place an interpretation onSection 11AB by which those assesses who go in for provisionalassessment under Rule 7 are called upon to pay interest upon finalizationof the assessment with reference to the date of removal in a case wherethe value is fully determined as a result of escalation clause being workedresulting in an upward revision of prices and under Section 11ABpayability arises with reference to the date of decision to grant escalation.In other words, the law will have to be interpreted in a manner that it is A

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Afair and equal to similarly situated group of assessees. Legislativeintention, in this regard, also cannot be otherwise. Legislature has clearlyin Section 11AB spelt out the time with reference to the Act and theRules. Under Section 11AB in the case of short levy or short paymentinter alia, the expression “month in which the duty has become payable”under the Act and the rules must be understood as the month in whichBthe duty is payable under the Rules made under the Act. Thus, if goodsare removed in the month of January ordinarily payment must be madeby the 6[th] of February. If the duty is not paid by the 6[th] of February,Section 11AB must be understood as mulcting the assessee with liabilityto pay interest from the first day of March in the example we haveCgiven. If the assessee went in for provisional assessment under rule 7,it becomes liable from the 1[st] day of the month following the month forwhich the amount is determined.

51. The expression “the month in which the duty ought to havebeen paid” under this Act, when it is read alongwith Rule 8, whichDdeclares that the duty on the goods removed from the factory orwarehouse during a month is to be paid on the 6[th] day of the followingmonth would mean that the Legislature has understood the expression“the month in which the duty ought to have been paid” under the Act inthe same sense as it is declared in Rule 8.

E52. In this regard it is also pertinent to notice the finding in theorder of the original authority that perusal of the Circular dated 01/07/2004 makes it unambiguously clear that the price was understood asprovisional price. This belies quite clearly the case of the appellant thatthe price was final. Could the assessee in the light of the Circular evenfor a moment in the same breath contend that the assessee wasFunhesitatingly ready and able to determine the price and hence the value.We would think that it certainly presented a situation where the assesseeshould have resorted to Rule 7.

53. As we have already noted, SAIL has paid the differential dutyof Rs.142.78 crores even without waiting for any notice under SectionG11A(1). The assessee volunteered and made payment in October 2006.We find merit in the finding by the authority that this is a case wheretherefore the payment made by the assessee is to be treated as onefalling under Section 11A(2)b). This meant also that there was no needfor determination of the duty within the meaning of Section 11A(2)(a) orissuance of notice under Section 11A.H

54. It is important to notice that when we contrast Section 11A asit was introduced with effect from 15.11.1980 with Section 11A afteramendment by Section 97 of the Finance Act, 2000, we find that in thelater avtar of Section 11A, the following words have been inserted: - “Whether or not such non-levy or non-payment, short-levy orshort-payment or erroneous refund, as the case may be, was onthe basis of any approval, acceptance or assessment relating tothe rate of duty on or valuation of excisable goods under anyother provisions of this Act or the rules made thereunder.”

No doubt, it had the effect of taking away the basis for the decisionin the case of Collector of Central Excise, Baroda v. Cotspun Ltd.reported in (1999) 7 SCC 633, which took the view that a levy based onthe approved classification list, is not short-levy. But its impact goesbeyond the same. Power under Section 11A to recover the duty whichhas not been levied or not been paid or short-levied or short-paid will beavailable inter alia irrespective of, whether the aforesaid contingencywas or was not the result of any approval, acceptance or assessmenteither relating to the rate of duty or the valuation under the Act and theRules. Thus, even when there has been an assessment or acceptance inrelation to the rate of duty or valuation, it does not stand in the way ofinvoking power under Section 11A.

55. Rule 12 declares that every assessee is to file monthly returns.There is no provision in the rule which contemplates an assessment assuch based on the return by the authorities. Assessment is self-assessmentby the assessee under Rule (6). No doubt, in the case covered by Rule7 there is a provisional assessment followed by a final assessment. Themain ingredients for self-assessment would appear to be (1) the rate ofduty (2) valuation (3) quantity of removal.

56. Are cases of non-levy, non-payment, short-levy and short-payment mutually exclusive?. In other words, can it be said that in acase of non-payment, it would not be a case of non-levy? Do theyoverlap? If there is non-levy, will there by short levy at the same time.Finally, in a case of short levy, can there also be short payment?

57. What is levy? We have already noticed that in the decision ofthis Court in N.B. Sanjana (supra), this Court rejected the argument ofthe Revenue that levy in Rule 10 means collection of some amount. The A

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ACourt went on to hold that levy has not been used in the Act or the rulesas meaning actual collection.

58. In a case where goods are removed clandestinely, there wouldbe no levy. Equally, there will be non-payment. Thus, a case of non-levy can overlap with non-payment. No doubt, there can be cases whereBdespite full levy there can be no payment, may be by mistake orotherwise. Equally thus, if there is no non-levy, there can be partialpayment. That would make it a case of short payment as the paymentdoes not match the amount of duty levied as per the self-assessmentcarried out by the assessee. A short levy ordinarily would be a casewhere out of the ingredients of assessment, namely, (1) rate of duty, (2)Cvaluation and (3) quantity removed, the components all or any areincorrectly applied. As an instance if the full rate of duty applicable isnot applied though the valuation and the quantity is correctly arrived at,it may fall under short-levy. In one sense it could be said that there isshort-payment also, as if payment could be understood as the amountDwhich ought to have been paid but it has not been paid, it may be a caseof short payment. But it may be more appropriate to put it under shortlevy where the deficit in payment is essentially in terms of a short-levy.

59. We are here concerned in these cases with one of theingredients of assessment, namely, valuation. There is no disputeEregarding the quantity removed. There is no issue relating to rate ofduty. The dispute is relating to the correct value. To appreciate it better,let us take an example of an assessee who deliberately undervalues thegoods which he removed. This results in assessee arriving at an amountwhich would not be the correct amount. He pays this incorrectly assessedamount. Would it be a case of short levy or short payment? If short-Flevy is to be understood as confined to cases where the assessment isnot the full assessment, taking into account the parameters involvedcorrectly, namely, rate of duty, valuation and quantity it could be classifiedas a case of short levy as one of the components of proper assessmentnamely, valuation has been incorrectly arrived at. The payment in suchGa case is made in terms of the incorrectly assessed figure. The paymentmatches the assessment. In fact, it is worthwhile to recall that underRule 10 of 1944 Rules which we have adverted to., the expression “short-payment” is not used. Instead the words duty has not been paid in full,has been used. No doubt, in a case where in law though the amountwhich is paid is in harmony with the amount which is assessed, it is not H

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the amount which ought to have been paid by the assessee. The absenceof full payment of duty or short payment has indeed also in one sensetaken place. In a case where there is an escalation clause goods arecleared on a provisional price. Consequently, the value is provisional.There is a subsequent escalation with retrospective effect. It will affectthe valuation which was employed in the self-assessment by the assesseewhich would necessarily be provisional. Enhancement of the value willdate back to the dates of removal in view of the retrospective operation.Admittedly the liability for payment of differential duty has arisen. Uponthe true value, in a case of retrospective escalation of price though lateragreed being received and consequential differential duty being admittedlypayable, it would result in Section 11A read with Section 11AB applying.

60. It is true that the statutory authority has found it to be a caseof short payment. In the notice issued claiming interest it is stated thereis short levy (see page 89 Vol.II SLP paper book). Proceeding on thebasis that it is a case of short levy, Section 11A read with Section 11ABis attracted and the interest clock ticks from the date as we have foundnamely as provided in Rule 8 read with Section 11AB. If the concept ofshort payment is stretched to include all amounts which ought to havebeen paid, it may also be treated as a case of short payment thoughjuridically it may be true that it may strictly fall under short levy.

61. While it may be true that interest cannot be demanded by wayof damages or compensation and it is also further true that unless thereis a substantive provision providing for payment of interest in a fiscalstatute, interest cannot be demanded, we would think in the context ofthe Act and the Rules in question, under Section 11AB, particularly, whenthere is no dispute relating to liability to pay the differential duty and wenotice that absence of dispute is a fair acknowledgement of the fact thatthe facts of the present cases are unlike the situation in MRF decisionwhere the price was fixed at the time of removal, interest is payable asprovided in Section 11AB and from the point of time indicated therein.But in these cases, the price was variable under the escalation clausewhich was very much within the knowledge of the assessee and thedemand for interest is sustainable.

62. As far as the scope of the second explanation of Section11A(2)(b) is concerned, it contemplates payment voluntarily by theassessee. It is without any notice being issued under Section 11A. Thereis also reference to liability on the part of the assessee to pay interest AB

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Aunder Section 11A(2)(b), not only on the amount which is paid withinthe meaning of Section 11A(2)(b) but on any short payment as may bedetermined by the excise officer. This only means that payment can byan assessee of any of the four amounts with which we are moreconcerned namely, non-levy, non-payment, short-levy or short-payment.Since there is no notice under Section 11A and non-determination of theBamount as such pursuant to which the amount is paid it may happen thatthere may be shortfall in the amount which is paid by the assessee incomparison to what the assessee is legally required to pay. The shortpayment which is therefore referred to in the second Explanation toSection 11A(2)(B) can only be the aforesaid short payment and it is notCreferring to the short payment of duty which was originally occasionedand which is the subject matter of Section 11A(2)(b) and Section 11AB.

63. We are of the view that the reasoning of this Court in theorder referring the cases to us (to this Bench) that for the purpose ofSection 11AB, the expression “ought to have been paid” would meanDthe time when the price was agreed upon by the seller and the buyerdoes not square with our understanding of the clear words used in Section11AB and as the rules proclaim otherwise and it provides for the duty tobe paid for every removal of goods on or before the 6[th] day of thesucceeding month. Interpreting the words in the manner contemplatedby the Bench which referred the matter would result in doing violence toEthe provisions of the Act and the Rules which we have interpreted. Wehave already noted that when an assessee in similar circumstances resortsto provisional assessment upon a final determination of the valueconsequently, the duty and interest dates back to the month “for which”the duty is determined. Duty and interest is not paid with reference to Fthe month in which final assessment is made. In fact, any otherinterpretation placed on Rule 8 would not only be opposed to the plainmeaning of the words used but also defeat the clear object underliningthe provisions. It may be true that the differential duty becomes crystalisedonly after the escalation is finalized under the escalation clause but it is not a case where escalation is to have only prospective operation. It isGto have retrospective operation admittedly. This means the value of thegoods which was only admittedly provisional at the time of clearing thegoods is finally determined and it is on the said differential value thatadmittedly that differential duty is paid. We would think that while theprinciple that the value of the goods at the time of removal is to reignH

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONEROF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

supreme, in a case where the price is provisional and subject to variationand when it is varied retrospectively it will be the price even at the timeof 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 relevanttime did not provide read with the rules any other point of time when theamount of duty could be said to be payable and so equally the interest.We would concur with the views expressed in SKF case(supra) andInternational Auto (supra). We find no merit in the appeals. Theappeals will stand dismissed.

Devika Gujral

Appeals dismissed.

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