M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER OF CENTRAL EXCISE, RAIPUR

The Judgment of the Court was delivered by K. M. JOSEPH, J.

1Copy pinpoint1. A Bench of two judges doubted the correctness of the judgment B rendered by a Bench of two learned judges of this Court in CCE v. SKF India 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 resolve the controversy the matter stood posted before us. C

2Copy pinpoint2. Very briefly put, the question which we are called upon to consider and resolve is as to whether interest is payable on the differential excise duty with retrospective effect that become payable on the basis of escalation clause under Section 11AB of the Central Excise Act, 1944 (hereinafter referred to as “the Act”). D

3Copy pinpoint3. In this batch of appeals, we will treat C.A. No.2150/2012 as the leading case. We will refer to the said case as the SAIL Case. In the said case originally, the appellant company which is manufacturer of various products including rail sold the same to the Indian Railways. The products were cleared on sale from 1st January, 2005 to July 2006. The goods were cleared on the payment of excise duty on the payment of price which was fixed based on their circular dated 24.04.2005. Subsequently, the prices were enhanced by way of price circular dated 20.07.2006. The revision came into effect with retrospective effect. It is based on the same that SAIL deposited Rs.142 crores by way of excise duty. This was done in August 2006. Thereupon, the officers of the department indulged in correspondence with SAIL seeking details regarding the clearances which were effected. On the basis of material made available, SAIL was called upon to remit interest under Section 11AB of the Act. SAIL filed its objections. It is after considering the objections, the authority found that SAIL was liable to pay interest on a sum of Rs.142 crores calculated based on the date of removal of the goods during the period from January, 2005 to July,2006. Various objections raised by the appellants were dealt with and they were found merit less. An appeal was carried before the Tribunal. The Tribunal relied upon the judgment of this Court in SKF India Ltd. Case (supra) and accordingly dismissed the appeal. Thereafter when the matter came H

p. 408 Copy page pinpoint

A up before this Court, a Bench of two learned judges after elaborately hearing the matter doubted the correctness of the decision in SKF case and also International Auto and hence the cases were referred to us in the decision reported in 2015 (16) SCC 107. We heard learned counsel for the parties.

4Copy pinpoint4. In SKF case also the assessee on the basis of revision of prices with retrospective effect paid the differential duty on being called upon to pay the said amount. Thereafter the Revenue called upon the assesee to pay interest under Section 11AB of the Act. A Bench of two learned judges after considering Sections 11A and 11AB disapproved the judgment of the Bombay High Court in CCE v. Rucha Engineering P.Ltd. C holding 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 two categories. One in which the non-payment or short-payment, etc. of duty is for a reason other than deceit; the default is due to D oversight or some mistake and it is not intentional. The second in which the non-payment or short-payment, etc. of duty is “by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of the Act or of Rules made thereunder with intent to evade payment of duty”; E that is to say, it is intentional, deliberate and/or by deceitful means. Naturally, the cases falling in the two groups lead to different consequences and are dealt with differently.

12. Section 11-A, however allow the assessees-in-default in both kinds of cases to make amends, subject of course to certain F terms and conditions. The cases where the non-payment or short- payment, etc. of duty is by reason of fraud, collusion, etc. are dealt with under sub-section (1-A) of Section 11-A and the cases where the non-payment or short-payment of duty is not intentional under sub-section (2-B).

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

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 409 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

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

17. We are unable to subscribe to the view taken by the High Court in Rucha Engg. [ First Appeal No. 42 of 2007 decided on 3-4-2007] It is to be noted that the assessee was able to demand from its customers the balance of the higher prices by virtue of retrospective revision of the prices. It, therefore, follows that at the time of sale the goods carried a higher value and those were cleared on short-payment of duty. The differential duty was paid only later when the assessee issued supplementary invoices to its customers demanding the balance amounts. Seen thus, it was clearly a case of short-payment of duty though indeed completely unintended and without any element of deceit, etc. The payment of differential duty thus clearly came under sub-section (2-B) of Section 11-A and attracted levy of interest under Section 11-AB of the Act.”

5Copy pinpoint5. The same Bench in International Auto case came to reiterate the same view in the latter decision. The Bench also proceeded to distinguish the decision in MRF Ltd. v. Collector of Central Excise, Madras 1997 (5) SCC 104. This is what the court has laid down in regard to MRF case in paragraph 9. “9. In our view, with the entire change in the scheme of recovery of duty under the Act, particularly after insertion of Act 14 of F 2001 and Act 32 of 2003, the judgment of this Court in MRF Ltd. [(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. That judgment was in the context of the price list approved on 14-5-

1983. In that case, the assessee had made a claim for refund of G excise duty on the differential between the price on the date of removal and the reduced price at which tyres were sold. The price was approved by the Government. In that case, the assessee submitted that its price list was approved by the Government on 14-5-1983, but subsequent thereto, on account of consumer H

p. 410 Copy page pinpoint

A resistance, the Government of India directed the assessee to roll back the prices to pre-14-5-1983 level and on that account, price differential arose on the basis of which the assessee claimed refund of excise duty which stood rejected by this Court on the ground that once the assessee had cleared the goods on classification, the assessee became liable to payment of duty on the date of removal and subsequent reduction in the prices for whatever reason cannot be made a matter of concern to the Department insofar as the liability to pay excise duty was concerned.”

6Copy pinpoint6. A Bench of two learned judges who have referred the cases felt that the MRF decision would continue to prevail, the value at the time of removal of the goods alone would govern the Situation which is a fundamental principle which continues to hold good till now. The additional duty to be paid in future cannot be treated as attracting the concept of “short payment”. Though the differential duty may be payable but the interest is not payable. The interest clock would start ticking from the date the differential duty is due, that is, the day on which the parties agree upon the escalated price and not before. The expression “ought to have been paid” found in Section 11AB was not considered by this Court in SKF case, it was pointed out. The Court felt that SKF Case runs contrary to the Constitution Bench decision in JK Synthetics and interest cannot be demanded by way of damages or compensation. E

7Copy pinpoint7. In our view, the following questions will fall to be decided by us: 1) Whether the decision in SKF case and also in International Auto lay down the correct law having regard to the decision of this Court in MRF case which was in fact rendered by a F Bench of three Judges. 2) The effect of the judgment in JK Synthetics v. State of Rajathan as also the other judgments cited before us in regard to demand for interest under fiscal statutes. 3) Whether the determination of duty under Section 11A(2) is G necessary to sustain the demand for interest under Section 11AB of the Act. 4) The impact of Rule 7 of the Central Excise rules which contemplates provisional assessment.

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 411 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

5) Whether payment of differential duty can be treated as a A case of payment of duty under the head “short paid”. 6) The effect of decisions under the Income Tax Act relating to accrual of income and the impact of accrual of income under the Income Tax Act on the liability under Section 11AB of the Act having regard to the statutory scheme under the Act B and the Rules.

8Copy pinpoint8. Before we proceed to deal with the matter in greater detail, we must at once notice the following finding in the reference order passed by this Court in Steel Authority of India vs. CCE (supra): “21. In the first instance, he pointed out that in these appeals, C there can be two distinct types of transactions: (a) where the price of the goods is “fixed” at the time and place of removal, and as a result of subsequent negotiations (often protracted) the price is retrospectively revised by the buyer; D (b) where the price at the time and place of removal is “not fixed” (price subject to escalation clause), and the final price is agreed between the seller and buyer subsequently. According to him in the cases falling in the first category, even the differential duty is not payable. However, all these appeals E fall in the second category and, therefore, we are not indulging in any discussion pertaining to the first category. We may also point out that in all these appeals, the period in dispute (i.e. the period in which supplementary invoices on account of price revision were raised) is post the introduction of the “transaction value” definition in Section 4 of the 1944 Act but before 2010. F

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

p. 412 Copy page pinpoint

A Therefore, we proceed further in this matter on the basis that the price at the time of removal is not fixed. That is, the price is subject to revision under the escalation clause. There is also admittedly no dispute raised either before the Bench which referred the matter or before us by the learned counsel for the appellant that differential duty is indeed payable on the subsequently revised price which is to operate with B retrospective effect.

9Copy pinpoint9. At this juncture we think it apposite to refer to the facts in MRF case (MRF Limited v. Collector of Central Excise, Madras). MRF Case was decided on 12.3.1997 and it is reported in 1997 (5) SCC 104. The appeal was filed in this Court against the order passed by the Tribunal C dated 24.9.1986. By the impugned order the assessee’s claim for refund of excess duty paid on differential price on the date of removal and the reduced price was rejected. The case set up by the assessee was that the price list was approved on 14.5.1983. Subsequently, there was resistance by the consumers. The Ministry of Commerce, Government D of India, thereupon directed the manufacturer- assessee pursuant to a decision taken in a meeting of Manufacturers to bring down the prices to the pre 14.5.1983 level. On the basis of the same a difference in the prices arose. This led to a claim for refund. The Tribunal was of the view that the prices at the time of removal alone mattered. The subsequent reduction in the prices for whatever reason was totally irrelevant. Thereafter, the court proceeded to hold as follows: “2. We have heard the learned counsel for the assessee. Once the assessee has cleared the goods on the classification and price indicated by him at the time of the removal of the goods from the factory gate, the assessee becomes liable to payment of duty on that date and time and subsequent reduction in prices for whatever reason cannot be a matter of concern to the Central Excise Department insofar as the liability to payment of excise duty was concerned. This is the view which was taken by the Tribunal in the case of Indo Hacks Ltd. V. CCE (1986) 25 ELT 69 (Trib)and it seems to us that the Tribunal’s view that the duty is chargeable at the rate and price when the commodity is cleared at the factory gate and not on the price reduced at a subsequent date is unexceptionable. Besides as rightly observed by the Tribunal the subsequent fluctuation in the prices of the commodity can have no relevance whatsoever so far as the liability to pay excise duty H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 413 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

is concerned. That being so, even if we assume that the roll back A in the price of tyres manufactured by the appellant Company was occasioned on account of the directive issued by the Central Government, that by itself, without anything more, would not entitle the appellant to claim a refund on the price differential unless it is shown that there was some agreement in this behalf with the B Government and the latter had agreed to refund the excise duty to the extent of the reduced price. That being so, we see no merit in this appeal brought by the assessee and dismiss the same with no order as to costs.”

10Copy pinpoint10. We may at once notice a feature which stands out. In the MRF case at the time when the goods were removed, the prices were fixed and there was absolutely no occasion for the assessee or the department to even contemplate a price revision either upwards or downwards. The price was not provisional. Therefore, we would think that out of the two situations which are noted in paragraph 21 of the Reference Order, the first situation would be comparable to the facts of the decision obtaining in MRF case. In case where the price is fixed there would be no occasion for the assessee to seek refund but here in the case before us, admittedly the case does not fall under the first category even according to the appellants. It could be said that the price was subject to variation based on the operation of the price escalation clause. Now the time is ripe for us to consider the statutory framework under the Act and the Rules made under the Act. Section 2(h) of the Act defines sale and purchase as follows: 2(h) “sale” and “purchase”, with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration.”

11Copy pinpoint11. Interestingly, unlike under the definition of Sale of Goods Act, 1930, “sale” under the Act takes place on transfer of possession. However we need not say anything further as it is not necessary for the cases at hand. Section 3 is the charging section. With effect from 1.7.2000 under the Finance Act of 2000, Section 4 of the Act which is crucial for our case reads as follows: “4. Valuation of excisable goods for purpose of charging of duty of excise – H

p. 414 Copy page pinpoint

A (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall – (a) In a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and B the buyer of the goods are not related and the price is the sole consideration for the sale, be the tansaction value; (b) In any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed C (2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of section 3. (3) For the purpose of this section,-

D (a) “assessee” means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) xxx xxx xxx (c) xxx xxx xxx (d) “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.”

12Copy pinpoint12. Section 11A was inserted in the year 1980 and it underwent changes. Section 11A of the Act as it stood at the relevant time read as follows: “11A. Recovery of duties not levied or not paid or short-levied or shot-paid or erroneously refunded – (1) When any duty of excise H has not been levied or paid or has been short-levied or short-paid

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 415 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

or [erroneously refunded, whether or not such non-levy or non- A payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder], a Central Excise Officer may, within [one year] from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short- levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any duty of excise has not been levied or paid or has been short-levied or shot-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty by such person or his agent, the provisions of this sub-section shall have effect [as if, {***]] for the words [one year], the words “five years” were substituted. [Provided further that where the amount of duty which has not been levied or paid or has been short-levied or short-paid or erroneously refunded is one crore rupees or less a notice under this sub-section shall be served by the Commissioner of Central Excise or with his prior approval by any officer subordinate to him: Provided also that where the amount of duty which has not been levied or paid or has been short-levied or short-paid or erroneously refunded is more than one crore rupees, no notice under this sub-section shall be served without the prior approval of the Chief Commissioner of Central Excise.] (2) The [Central Excise Officer] shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of duty of excise due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined. (3) For the purposes of this section,- H

p. 416 Copy page pinpoint

A (i) “refund” includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India; (ii) “relevant date” means,- [(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid - (A) where under the rules made under this Act a periodical return, showing particulars of the duty paid on the excisable goods removed during the period to which the said return relates, is to be filed by a manufacturer or a producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed; (B) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules; D (C) in any other case, the date on which the duty is to be paid under this Act or the rules made thereunder;]”

13Copy pinpoint13. Section 11AB is undoubtedly the most crucial Section as far as this case is concerned. Section 11AB read as follows: E “11AB. Interest on delayed payment of duty,– (1) Where any duty of excise has not been levied or paid or has been short-levied or shot-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty, the person liable to pay duty as determined under sub-section (2) of section 11A shall, in addition to the duty, be liable to pay interest [at such rate not below eighteen per cent, and not exceeding thirty-six per cent, per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette], from the first day of the month succeeding the month in which the duty ought to have been paid under this Act or the rules made thereunder or from the date of such erroneous refund, as the case may be, but for the provisions contained in sub-section (2) of section 11A, till the date of payment of such duty. H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 417 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

(2) For the removal of doubts, it is hereby declared that the A provisions of sub-section (1) shall not apply to cases where the duty 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.

14Copy pinpoint14. It is also now relevant to notice certain rules under the Central B Excise 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 excisable goods, or who stores such goods in a warehouse, shall pay the C duty leviable on such goods in the manner provided in rule 8 or under any other law, and no excisable goods, on which any duty is payable, shall be removed without payment of duty from any place, where they are produced or manufactured, or from a warehouse, unless otherwise provided : D Proviso and Explanation omitted. (1A) XXX XXX XXX (2) Notwithstanding anything contained in sub-rule (1), where molasses are produced in a khandsari sugar factory, the person who procures such molasses, whether directly from such factory E or otherwise, for use in the manufacture of any commodity, whether or not excisable, shall pay the duty leviable on such molasses, in the same manner as if such molasses have been produced by the procurer. (3) Omitted F (4) XXX XXX XXX RULE 5. Date of determination of duty and tariff valuation. — (1) The rate of duty or tariff value applicable to any excisable goods, other than khandsari molasses, shall be the rate or value in G force on the date when such goods are removed from a factory or a warehouse, as the case may be. (2) The rate of duty in the case of khandsari molasses, shall be the rate in force on the date of receipt of such molasses in the factory of the procurer of such molasses. H

p. 418 Copy page pinpoint

A Explanation. - If any excisable goods are used within the factory, the date of removal of such goods‘ shall mean the date on which the goods are issued for such use. (3) omitted. RULE 6. Assessment of duty.- The assessee shall himself assess B the duty payable on any excisable goods: Provided that in case of cigarettes, the Superintendent or Inspector of Central Excise shall assess the duty payable before removal by the assessee. Provisional assessment.

C RULE 7. Provisional assessment.- (1) Where the assessee is unable to determine the value of excisable goods or determine the rate of duty applicable thereto, he may request the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, in writing giving reasons for payment of duty on provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, may order allowing payment of duty on provisional basis at such rate or on such value as may be specified by him. (2) The payment of duty on provisional basis may be allowed, if the assessee executes a bond in the form prescribed by notification by the Board with such surety or security in such amount as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, deem fit, binding the assessee for payment of difference between the amount of duty as may be finally assessed and the amount of duty provisionally assessed. (3) The Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall pass order for final assessment, as soon as may be, after the relevant information, as may be required for finalizing the assessment, is available, but within a period not exceeding six months from the date of the communication of the order issued under sub-rule (1): Provided that the period specified in this sub-rule may, on sufficient cause being shown and the reasons to be recorded in writing, be H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 419 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

extended by the Commissioner of Central Excise for a further period not exceeding six months and by the Chief Commissioner of Central Excise or Chief Commissioner of Central Excise for such further period as he may deem fit. (4) The assessee shall be liable to pay interest on any amount payable to Central Government, consequent to order for final assessment under sub-rule(3), at the rate specified by the Central Government by notification under section 11AA or Section 11AB of the Act from the first day of the month succeeding the month for which such amount is determined, till the date of payment thereof. C (5) Where the assessee is entitled to a refund consequent to order for final assessment under sub-rule (3), subject to sub-rule (6), there shall be paid an interest on such refund as provided under section 11BB of the Act from the first day of the month succeeding the month for which such refund is determined, till the date of refund. D

(6). Any amount of refund determined under sub-rule (3) shall be credited to the Fund: Provided that the amount of refund, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to – E (a) the duty of excise paid by the manufacturer, if he had not passed 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 on the incidence of such duty to any other person. F RULE 8. Manner of payment .- (1) The duty on the goods removed from the factory or the warehouse during a month shall be paid by the 5th day of the following month: Provided that in case of goods removed during the month of March, G the duty shall be paid by the 31st day of March : Provided further that where an assessee is availing of the exemption under a notification based on the value of clearances in a financial year, the duty on goods cleared during a calender H

p. 420 Copy page pinpoint

A month shall be paid by the 15th day of the following month except in case of goods removed during the month of March for which the duty shall be paid by the 31st day of March. Explanation – Not extracted (1A) *** *** *** B (2) The duty of excise shall be deemed to have been paid for the purposes of these rules on the excisable goods removed in the manner provided under sub-rule (1) and the credit of such duty allowed, as provided by or under any rule.

C (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 an interest at the rate of two per cent per month or rupees one thousand per day, whichever is higher, for the period starting with the first day after due date till the date of actual payment of the outstanding amount: D Provided that the total amount of interest payable in terms of this sub-rule shall not exceed the amount of duty which has not been paid by the due date: Provided further that till such time the amount of duty outstanding and the interest payable thereon are not paid, it shall be deemed E that the goods in que3stion in respect of which the duty and interest are outstanding, have been charged without payment of duty, and where such duty and interest are not paid within a period of one month from the due date, the consequences and the penalties as provided in these rules shall follow. F Illustrations – Not extracted (4) The provisions of Section 11 of the Act shall be applicable for recovery of the duty as assessed under rule 6 and the interest under sub-rule (3) in the same manner as they are applicable for recovery of any duty or other sums payable to the Central G Government.”

15Copy pinpoint15. Excise duty is a duty on manufacture or production of goods. It is, however, collected at the point of removal of goods. When the duty of excise is chargeable with reference to the value of goods, Section 4 provides that on each removal of the goods, the value will be determined H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 421 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

either under clause(a) or clause(b). We are in these cases governed by A clause(a). Section (4) yields the following elements: - (i) when the goods are sold; (ii) for delivery; (iii) at the time and place of removal; B (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 transaction value will be the value for the determination of excise duty. C The price may be what is actually paid or what is payable for the goods when sold. Apart from what is shown as the price the transaction value would include: (i) Any amount the buyer is liable to pay to the assessee by D reason of or in connection with the sale whether at the time of the sale or any other time. (ii) Any amount payable on behalf of the assessee by reason of or in connection with the sale whether at the time of sale or any other time. E (iii) The aforesaid amounts encompass certain amounts which are specifically enumerated namely, advertising, publicity, marketing and selling, organizational expenses, storage, outward handling serving, warranty, commission or any other matter. F

16Copy pinpoint16. Thus, the intent is to determine the value by not only including the actual price paid or payable but all amounts which are separately enumerated and found mention as hereinbefore.

17Copy pinpoint17. Now it is time to look at the effect of the rules relevant for the purpose of this case. Rule 4 falls under the heading ‘duty payable on G removal’. It is contemplated that duty is to be paid on the goods in the manner provided under Rule 8 or under any law. No excisable good on which duty is payable can be removed without payment of excise duty unless otherwise provided. This would take us to Rule 8 as there is no case that any other law is applicable. Rule 8 under the heading ‘manner H

p. 422 Copy page pinpoint

A of payment’ declares that duty on the goods removed from the factory etc. during a month shall be paid by the 5th day of the following month. Removal however in the month of March will entail liability to pay by 31st day of March. Sub-rule 3 of Rule 8 provides for liability with the assessee who fails to pay the amount by the due date. Sub rule 4 refers to liability to pay interest. It is amply clear that the expression ‘due date’ B would be 5th day of the month following the month during which the goods are removed except with regard to the goods removed during the month of March in which case the due date would be 31st day of March.

18Copy pinpoint18. The scheme of the rules further is that assessment is to be done by the assessee itself by way of self-assessment and the duty paid C by the due date (see Rule 6). What is to happen when the asssessee is confronted with a situation when it is unable to determine the value of the goods or find the rate of duty. Rule 7 provides the solution. The assessee can thereunder apply giving reasons and seeking permission to make a provisional assessment. The officer may, grant such permission. D Thereupon, duty is payable on a provisional basis. The value or the rate would be indicated by the officer in the order permitting such provisional assessment. This is however made subject to the assessee executing a bond binding the assessee to pay the difference between the duty as payable under the final assessment and the provisional assessment. The final assessment is to be made within six months from the date of E communication of the order permitting provisional assessment under Rule 7(1). The period can be extended by the Commissioner for six months and by the chief Commissioner for which there is no time limit. Sub-rule (4) of Rule 7 is very crucial. It provides as follows:-

F 1) The assessee shall be liable to pay interest 2) On any amount payable based on a final assessment under Rule 7(3) 3) At the rate fixed under Section 11A or Section 11B of the Act G 4) From the first date of the month succeeding the month for which the amount is determined till the date of payment thereof. Rule 7(5) contemplates interest on refund based on the final assessment. H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 423 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

19Copy pinpoint19. Now it is important that we delve upon the case of SAIL A before the Commissioner, its stand in the appeal and finally before this Court. As already noticed SAIL sold and cleared rails to Indian Railways based on the price circular dated 24/04/2005. The transaction in question related to the period 01/01/2005 to July, 2006. Later, based upon a revised price circular dated 20/07/2006, the prices were revised and it took effect from 01/01/2005. The excise duty undoubtedly in a sum of Rs. 142.78 crores came to be paid by SAIL in August 2006. However, upon receipt of notice under Section 11AB of the Act calling upon it to pay more than Rs. 15 crores as interest under Section 11AB. SAIL raised various objections. It, in fact, contended that this is not a case of short payment of duty as the price at the time of actual removal of goods formed the basis for which duty was duly paid. It was not liable to pay the differential duty. Rebutting the case of the department, it was contended that it was not liable to resort to provisional assessment under Rule 7. The Commissioner however, took the view that the price which were shown originally by SAIL was itself provisional. It was a case where the assessee should have invoked Rule 7 and proceeded to make the provisional assessment. In appeal before the Tribunal, the assessee- SAIL continued with its contention that it actually was not liable to pay the differential duty. The Tribunal as already noticed following the judgment of this Court in SKF case (supra) which came to be delivered by that time dismissed the appeal of the assessee. Before the Bench E which referred the matters to this Bench however, the appellants have made it clear that they are indeed liable to pay the differential duty. We have noticed that stand which has been expressly recorded by this Court in paragraphs 21-22 of the reference order.

20Copy pinpoint20. Much reliance has been placed by the appellants on the decision of this Court in J K Synthetics. The first decision is the decision of this Court in Associated Cement. The said decision was rendered by a Bench of 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 case arose under the Rajasthan Sales Tax Act. The two relevant provisions to be noticed under the statute considered by the said Bench are Sections 7 and Section 11B of the Act. They read as follows: “7. Submission of returns.-(1) Every registered dealer and such other dealer, as may be required to do so by the assessing authority H

p. 424 Copy page pinpoint

A by notice served in the prescribed manner, shall furnish prescribed returns, for the prescribed periods, in the prescribed forms, in the prescribed manner and within the prescribed time to the assessing authority: Provided that the assessing authority may extend the date for the submission of such returns by any dealer or class of dealers by a period not exceeding fifteen days in the aggregate. (2) Every such return shall be accompanied by a Treasury receipt or receipt of any bank authorised to receive money on behalf of the State Government, showing the deposit of the full amount of tax due on the basis of return in the State Government Treasury or bank concerned. (2A) Notwithstanding anything contained in sub-section (2), the State Government may by notification in the official Gazette require any dealer or class of dealers specified therein, to pay tax at intervals shorter than those prescribed under sub-section (1). In such cases, the proportionate tax on the basis of the last return shall be deposited at the intervals specified in the said notification in advance of the return. The difference, if any, of the tax payable according to the return and the advance tax paid shall be deposited with the return and the return shall be accompanied by the treasury receipt, or receipts, of any Bank E authorised 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 statement in any returns furnished by him under sub-section (1), he may furnish a revised return in the prescribed manner before the time F prescribed for the submission of the next return but not later. (4) Every deposit of tax made under sub-section (2) shall be deemed to be provisional subject to necessary adjustments in pursuance of the final assessment of tax made for any year under section 10.” G “11-B. Interest on failure to pay tax, fee or penalty – (a) If the amount of any tax payable under sub-sections (2) and (2-A) of Section 7 is not paid within the period allowed, or (b)If the amount specified in any notice of demand, whether for tax, fee or penalty, is not paid within the period specified in such H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 425 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

notice, or in the absence of such specification, within 30 days from the date of service of such notice, the dealer shall be liable to pay simple interest on such amount at one per cent per month from the day commencing after the end of the said period for a period of three months and at one and a half per cent per month thereafter during the time he continues to make default in the payments; Provided that, where, as a result, of any order under this Act, the amount, on which interest was payable under this section, has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded; C Provided further that no interest shall be payable under this section on such amount and for such period in respect of which interest is paid under the provisions of Sections 11 and 14.”

21Copy pinpoint21. In Associated Cement Ltd., the majority was dealing with the case falling under Section 11B(a). After analyzing the various provisions the majority took the view that not only the assessee should have paid the tax on the basis of the return but the return must be a return which it ought to have filed in law and on facts. Justice Bhagwati who dissented however, took exception to this reasoning and found that such an interpretation would raise conflicts between the provisions contained in clause (a) and clause(b) of Rule 11B. Justice Bhagwati in his dissent pointed 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 the reasoning of the majority is accepted, different rates of interest would apply at different stages. Furthermore, it was reasoned that an assessee cannot do beyond paying the tax according to the return. He cannot possibly divine what the assessing officer will finally assess him to. In fact, in the later judgment in JK Synthetics, the Constitution Bench subscribed to the view expressed in the dissenting judgment in ACC Ltd. case which it accepted as laying down the correct position in law and overruled the majority in Associated Cement Co. case. In the JK Synthetics judgment also the case arose under the Rajasthan Sales Tax G Act though it arose under Section 7(2)(A). The case in Associated Cement case fell under under Section 7(2) of the Act. What is relevant for our purpose are two aspects. One is we must bear in mind the actual provisions of the Rajasthan tax law which fell for consideration H

p. 426 Copy page pinpoint

A that we have already set forth. We must advert to the law which has been laid down in JK Synthetics. Following is the discussion: “16. It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. (See Whitney v. IRC [1926 AC 37 : 42 TLR 58] D , CIT v. Mahaliram Ramjidas [(1940) 8 ITR 442 : AIR 1940 PC 124 : 67 IA 239], India United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay [(1955) 1 SCR 810 : AIR 1955 SC 79 : (1955) 27 ITR 20] and Gursahai Saigal v. CIT, Punjab [(1963) 3 SCR 893 : AIR 1963 SC 1062 : (1963) 48 ITR 1] ). But it must also be realised that provision by which the authority is E empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. (See Bengal F Nagpur Railway Co. Ltd. v. Ruttanji Ramji [AIR 1938 PC 67 : 65 IA 66 : 67 CLJ 153] and Union of India v. A.L. Rallia Ram [(1964) 3 SCR 164, 185-90 : AIR 1963 SC 1685] ). Our attention was, however, drawn by Mr Sen to two cases. Even in those cases, CIT v. M. Chandra Sekhar [(1985) 1 SCC 283 : 1985 SCC (Tax) 85 : (1985) 151 ITR 433] and Central Provinces G Manganese Ore Co. Ltd. v. CIT [(1986) 3 SCC 461 : 1986 SCC (Tax) 601 : (1986) 160 ITR 961] , all that the Court pointed out was that provision for charging interest was, it seems, introduced in order to compensate for the loss occasioned to the Revenue due to delay. But then interest was charged on the strength of a H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 427 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

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

17. Let us look at the question from a slightly different angle. Section 7(1) enjoins on every dealer that he shall furnish prescribed returns for the prescribed period within the prescribed time to the assessing authority. By the proviso the time can be extended by not more than 15 days. The requirement of Section 7(1) is undoubtedly a statutory requirement. The prescribed return must be accompanied by a receipt evidencing the deposit of full amount of ‘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 ultimate requirement is deposit of the full amount of ‘tax due’ shown in the return. When Section 11-B(a) uses the expression “tax payable under sub-sections (2) and (2-A) of Section 7”, that must be understood in the context of the aforesaid expressions employed in 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 the turnover 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 correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to ‘due’. Therefore, the conjoint reading of Sections 7(1), (2) and H

p. 428 Copy page pinpoint

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

22Copy pinpoint22. In short, therefore, the principle may be taken to be established that while levy of interest is a part of the adjective law, yet to levy interest there must be substantive provision. Demand for interest can be made only if the legislature has specifically intended collection of interest. We must look at the statutory provisions. E

23Copy pinpoint23. In Purolator India Limited Vs. Commissioner of Central Excise 2015 (10) SCC 715, a Bench of two learned Judges was called upon to decide the question as to whether cash discount and trade discount are to be deducted for arriving at the transaction value. The Bench went on to consider section 4 of the Act prior to its amendment in 1973, F after the amendment in 1973 and also still further after the amendment in the year 2000. After elaborate consideration of the matter, the Bench speaking through Justice Rohinton Fali Nariman held as follows: “14. It can be seen that the common thread running through Section 4, whether it is prior to 1973, after the amendment in 1973, or after the amendment of 2000, is that excisable goods have to have a determination of “price” only “at the time of removal”. This basic feature of Section 4 has never changed even after two amendments. The “place of removal” has been amended from time to time so that it could be expanded from a factory or any other premises of manufacture or production, to warehouses or

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 429 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

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

18. It can be seen that Section 4 as amended introduces the concept of “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 the price at which such goods were ordinarily sold in the course of wholesale trade, post-amendment each transaction is looked at by itself. However, “transaction value” as defined in sub-section E (3)(d) of Section 4 has to be read along with the expression “for delivery at the time and place of removal”. It is clear, therefore, that what is paramount is that the value of the excisable goods even on the basis of “transaction value” has only to be at the time of removal, that is, the time of clearance of the goods from the appellant’s factory or depot as the case may be. The expression F “actually paid or payable for the goods, when sold” only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of “transaction value” is therefore the agreed contractual price. Further, the expression G “when sold” is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject-matter of an agreement of sale. Once this becomes clear, what the learned counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is “known” at or H

p. 430 Copy page pinpoint

A prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods “at the time of removal”.

24Copy pinpoint24. No doubt, there are decisions of the High Court which followed in MRF Ltd. [see 2007 (207) ELT 31, Punjab and Haryana] to the effect that a subsequent reduction in prices would not entitle the assessee to lay a claim for refund. In 2010(257) ELT 369, Karnataka, the Division Bench of Karnataka High Court distinguished the judgment of this Court in SKF India Ltd.(supra) by noting that in the said case after the goods were initially cleared and appropriate duty had been paid, subsequently the price escalation was due to the increase in input labour and other costs which was determined by the All India Industrial Prices Indices and by the Reserve Bank of India nominated by All India Electrical Manufacturer Association. In terms of the said direction, the court noted that supplementary invoices were issued. It was noted that the assessee had also paid differential price. It is undoubtedly the case of the appellant that the SLP carried against the said judgment has been dismissed. We notice that this Court has given no reasons while dismissing the SLP.

25Copy pinpoint25. In India Carbon Ltd. & Ors. vs. State of Assam 1997 (6) SCC 479 there was delay in payment of central sale tax. The appellants were called upon to pay interest of 24% per annum by the sale tax authorities 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 to hold that there is no substantive provision in the Central Act requiring payment of interest under the Central Sales Tax Act. Though Section F 9(2) was pressed into service by the Revenue and the said provision did refer to the power to recover interest under the State Act noticing the absence of any power to recover interest under the Central Act in respect of tax due under the Central Act, the Court took the view that interest could not be demanded from the appellant. G CASE LAW UNDER THE INCOME TAX ACT.

26Copy pinpoint26. Appellants have sought to derive support from certain judgments rendered by this Court under the Income Tax Act. In E.D. Sassoon & Co. Ltd. v. CIT AIR 1954 SC 470, the appellant company which was the managing agent of certain companies agreed to transfer H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 431 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

their agencies to two companies. Amounts were received on formal deeds of conveyance and transfer being executed in the year 1944. The entire amount of the managing agency commission received by the transferees were assessed by the officers as income of the transferees for the year 1945-1946. In appeal the contention of the transferees was accepted, in that it was found that commission received by them should be apportioned on the proportionate basis and they were to be assessed on the commission earned during the period they had worked as managing agents of the respective companies. Proceedings were commenced against the appellant who were transferors’ of the commission agency in regard to the amounts of the commission earned prior to the date of the respective transfers. The case of the transferor inter alia was that no part of the commission for the broken period of 1943 was earned by them. The contract of employment was an entire indivisible contract. The Court had to consider the connotation of the word “earned” which was used in Section 4 of the Income Tax Act which fell for consideration. The majority judgment inter alia held as follows: D “35. If therefore on the construction of the Managing Agency Agreements we cannot come to the conclusion that the Sassoons had created any debt in their favour or had acquired a right to receive the payments from the Companies as at the date of the transfers of the Managing Agencies in favour of the transferees no income can be said to have accrued to them. They had no doubt rendered services as Managing Agents of the Companies for the broken periods. But unless and until they completed their performance viz. the completion of the definite period of service of a year which was a condition precedent to their being entitled to receive the remuneration or commission stipulated thereunder no debt payable by the Companies was created in their favour and they had no right to receive any payment from the Companies. No remuneration or commission could therefore be said to have accrued to them at the dates of the respective transfers.

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

p. 432 Copy page pinpoint

A up. But when the accounts are thus made up the income, profits or gains ascertained as the result of the account are referred back to the chargeable accounting period during which they have accrued or arisen and the assessee is liable to tax in respect of the same during that chargeable accounting period. “The computation of the profits whenever it may take place cannot B possibly be allowed to suspend their accrual …”. “The quantification of the commission is not a condition precedent to its accrual”. (Per Ghulam Hassan, J. in CIT v. K.R.M.T.T. Thiagaraja Chetty and Co. [24 ITR 525 at p. 534] See also Isaac Holden and Sons, Ltd. v. Commissioners of Inland Revenue[12 C TC 768], and Commissioners of Inland Revenue v. Newcastle Breweries Ltd.[12 TC 927] What has however got to be determined is whether the income, profits or gains accrued to the assessee and in order that the same may accrue to him it is necessary that he must have acquired a right to receive the same or that a right to the income, profits or gains has become vested in him though its valuation may be postponed or though its materialisation may depend on the contingency that the making up of the accounts would show income, profits or gains. The argument that the income, profits or gains are embedded in the sale proceeds as and when received by the Company also does not help the transferees, because the Managing Agents have no share or interest in the sale proceeds received as such. They are not co-sharers with the Company and no part of the sale proceeds belongs to them. Nor is there any ground for saying that the Company are the trustees for the business or any of the assets for the Managing Agents. The Managing Agents cannot therefore be said to have acquired a right to receive any commission unless and until the accounts are made up at the end of the year, the net profits ascertained and the amount of commission due by the Company to the Managing Agents thus determined. (See Commissioners of Inland Revenue v. Lebus) [(1946) 1 AER G 476 (Z3)”.

55. The whole difficulty has arisen because the High Court could not reconcile itself to the situation that the transferees had not worked for the whole calendar year and yet they would be held entitled to the whole income of the year of account; whereas the transferors had worked for the broken periods and yet they would

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 433 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

be held disentitled to any share in the income for the year. If the work done by the transferors as well as the transferees during the respective periods of the year were taken to be the criterion the result would certainly be anomalous. But the true test under Section 4(1)(a) of the Income Tax Act is not whether the transferors and the transferees had worked for any particular periods of the year but whether any income had accrued to the transferors and the transferees within the chargeable accounting period. It is not the work done or the services rendered by the person but the income received or the income which has accrued to the person within the chargeable accounting period that is the subject-matter of taxation. That is the proper method of approach while considering the taxability or otherwise of income and no considerations of the work done for broken periods or contribution made towards the ultimate income derived from the source of income nor any equitable considerations can make any difference to the position which rests entirely on a strict interpretation of the provisions of Section 4(1)(a) of the Income Tax Act.”

27Copy pinpoint27. In Commissioner of Income Tax, Madras v. A. Gajapathy Naidu, Madras AIR 1964 SC 1653, a Bench of three learned Judges had to deal with the following factual scenario. The respondent had entered into a contract with the government for supplying bread. He was maintaining his accounts on mercantile basis. Amount due was credited to his account sometime later. The respondent represented to the Government complaining that he was supplying bread at a loss. Therefore, Government directed payment of compensation for the loss which was supplied in 1948-1949. He received a certain sum during the year 1950-1951. This amount was included by the officer in the assessment year 1951-1952. One of the contentions of the appellant assessee was that he had received sum in respect of the contract which was executed in the year 1948-1949 and therefore it could not be included in the assessment year 1951-1952. This Court proceeded on the basis that amount received by way of compensation was taxable. It went on to consider the question whether the assessee had been assessed correctly in the year 1951-1952. This Court allowed the appeal and took the view that the respondent-assessee was correctly assessed in the year 1951-1952. It referred the case of E.D. Sassoon & Co. Ltd. v. CIT (supra) which we have already referred to. The Court held inter alia as follows: H

p. 434 Copy page pinpoint

A “8. Under this definition accepted by this Court, an income accrues or arises when the assessee acquires a right to receive the same. It is common place that there are two principal methods of accounting for the income, profits and gains of a business-, one is the cash basis and the other, the mercantile basis. The latter system of accountancy “brings into credit what is due immediately it B becomes legally due and before it is actually received; and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed.” The book profits are taken for the purpose of assessment of tax, though the credit amount is not realized or the debit amount is not actually disbursed. C If an income accrues within a particular year, it is liable to be- ,assessed in the succeeding year. When does the right to receive an amount under a contract accrue or arise to the assessee i.e., come into existence? That depends upon the terms of a particular contract. No other relevant provision of the Act has been brought to our notice-for there is none- which provides an exception that though an assessee does not acquire a right to receive an income under a contract in a particular accounting year, by some fiction the amount received by him in a subsequent year in connection with the contract, though not arising out of a right accrued to him in the earlier year, could be related back to the earlier year and made taxable along with the income of that year. But that legal position is sought to be reached by a process of reasoning found favour with English courts. It is said that on the basis of proper commercial accounting practice, if a transaction takes place in a particular year, all that has accrued in respect of it, irrespective of the year when it accrues, should belong to the year of transaction and for the purpose of reaching that result closed accounts could be 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 the assessment, he should ask himself inter alia, two questions, namely, G (i) what is the system of accountancy adopted by the assessee? and (ii) if it is mercantile system of accountancy, subject to the deemed provisions, when has the right to receive that amount accrued? If he comes to the conclusion that such a right accrued or arose to the assessee in a particular accounting year, he shall include the said income in the assessment of the succeeding H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 435 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

assessment year. No power is conferred on the Income-tax Officer A under the Act, to relate back an income that accrued or arose in a subsequent year to another earlier year on the ground that the said income arose out of an earlier transaction. Nor is the question of reopening of accounts relevant in the matter of as certaining when a particular income accrued or arose. Section 34 of the Act B empowers the Income-tax Officer to assess the income which escaped assessment or was under- assessed in the relevant assessment year. Subject to the provisions of the section and following the procedure prescribed thereunder, he can include the escaped income and re-assess the assessee on the basis of which the earlier assessment was made. So too, under s. 35 of the Act C the officers mentioned therein can rectify mistakes either of their own motion or when such mistakes are brought to their notice by a party to the proceedings. For that purpose the correct item may be taken into consideration in the matter of assessment. But strictly speaking even in those cases there is no reopening of the accounts D of the assessee, but a re-assessment is made or the mistake is corrected on the basis of the actual income accrued or received by the assessee. We do not see any relevancy of the question of reopening of accounts in considering the question when an assessee acquired a right to receive an amount. The Court also held inter alia as follows: E

“9……We would prefer to base our conclusion on the ground that 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 received by the assessee in a later year, though the receipt was not on the basis of the right accrued in the earlier year. Such amounts are in F law received by the assessee only in the year when they are paid. We cannot apply the English decisions in the matter of construction of the provisions of the Indian Act, particularly when they have received an authoritative interpretation from this Court…”.

28Copy pinpoint28. In Vikrant Tyres Ltd. v. First Income Tax Officer, Mysore G 2001(3) SCC 76 under an assessment order under the Income Tax Act, 1961 the appellant assessee paid the tax. On his appeal being allowed the tax was refunded. The High Court reversed the Appellate order. On fresh demands being made the assessee repaid the tax as assessed and demanded. The revenue demanded payment of interest under Section H

p. 436 Copy page pinpoint

A 220(2) of Income Tax Act, 1961 for the period commencing with the refund of the tax. This Court allowed the appeal filed by the assessee and took the view that no tax could be levied or imposed by an act of Parliament without the words “clearly disclosing such an intention”. Finding there was no default in payment within the time by the assessee it was found that invocation of Section 220 was misplaced. This Court B purported to follow the decision in V.V.S. Sugars vs. Govt. of A.P. and Others 1999(4) SCC 192 (India Carbon vs. VBS Sugar). The last judgment we would advert to under the Income Tax Act was rendered by 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 of the said case in a nutshell was as follows: The assessee had let out its premises to the Government. The rent was enhanced with effect from 01.9.1987. The factum of enhancement was communicated to the assessee by letter dated 29.3.1994. The Income Tax Officer purported to reopen the assessment for 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 such right to receive the rent accrued to the assessee at any point of time during the assessment year in question, inasmuch as such enhancement though with retrospective effect, was made only in the year 1994. The contention of the Revenue that the enhancement was with retrospective effect, in our considered view, does not alter the situation as retrospectivity is with regard to the right to receive rent with effect from an anterior date. The right, however, came to be vested only in the year 1994.” F

29Copy pinpoint29. It was accordingly found that the notice to reopen the assessment for the assessment year 1989-1990 was without jurisdiction.

30Copy pinpoint30. We are of the view that the appellants are not justified in seeking to derive support from the judgments rendered by this Court G under the Income Tax Act. The impact of taxing of income under the Income Tax Act would not be apposite for considering the question which arises in these cases which is whether interest can be levied under Section 11AB of the Act in respect of the amounts which are short paid or short levied 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 a H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 437 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

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

31Copy pinpoint31. Now we may advert to the judgment of this Court in E.I.D. Parry (India) Ltd. v. CCT 2005 (4) SCC 779. The appellant therein was a manufacturer of sugar. The minimum price of sugarcane which they purchased from farmers was payable immediately. Under Clause 5A of the Sugarcane (Control) Order 1966, additional price was payable which would be determined only at the end of the year. On the advice of the Government the manufacturer paid the additional price as advance at the time of purchase from the farmers and it was subsequently adjusted under Clause 5A. In proceedings under the Tamil Nadu General Sales Tax Act 1959, the assessee showed the turnover on the basis of minimum price and paid tax thereon. It did not pay tax on the additional price which has been paid but it was included in the turnover. When the price was fixed under Clause 5A, the appellant filed revised return and paid tax. Interest was sought to be charged under Section 24(3) on the price fixed under Clause 5A from the date of purchase of sugarcane till the payment of tax. The appellants contended before this Court that the price determined under Clause 5A would be known only after it was determined. Only then the same would be includable in the returns. The advances given on advice from Government were merely ad hoc payments and did not constitute the price.

32Copy pinpoint32. Under the Tamilnadu Sales Tax Act, the dealers were given an option to pay tax in advance on the basis of monthly return. Under Section 13(1) which provided for advance payment of tax, the tax could be collected in advance in monthly or prescribed instalment. The F assessing authority could provisionally determine the amount, payable in advance and intimate the dealer to pay the tax. Sub-section (2) of Section 13 provided that the dealer may at his option pay tax in advance on the basis of his actual turnover for each month or for such other period as prescribed. Tax under this provision was to be paid on the basis of G return to be filed by him. It was also to become due without any notice of demand to the dealer inter alia. The Court proceeded to take the view that in the monthly returns, the advance which was received by the assessee should have been included as part of the turnover. When it came to the question relating to liability to interest, the Court referred to H

p. 438 Copy page pinpoint

A Section 24 of the Act. Section 24(3) provided for interest. It read as follows: “(3) On any amount remaining unpaid after the date specified for its payment as referred to in sub-section (1) or in the order permitting payment in instalments, the dealer or person shall pay, in addition to the amount due, interest at one-and-half per cent per month of such amount for the first three months of default and at two per cent per month of such amount for the subsequent period of default: Provided that if the amount remaining unpaid is less than one hundred rupees and the period of default is not more than a month, no interest shall be paid: Provided further that where a dealer or person has preferred an appeal or revision against any order of assessment or revision of assessment under this Act, the interest payable under this sub- D 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 the case may be, and shall be calculated on the amount that becomes due in accordance with the final order passed on the appeal or revision as if such amount had been specified in the order of assessment or revision of assessment, as the case may be.” E

33Copy pinpoint33. 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 has become payable under the Act, then the payment has to be made within the said time as may be specified in the notice of assessment and tax under Section 13(2) has to be paid without any notice of demand. However, as seen above, the tax under Section 13(2), in the absence of any determination by the assessing authority, is tax as per the returns. If default is made in payment of such tax then interest becomes payable under the Act. In the present case, it is an admitted position that tax as per the monthly return had been paid within time. It is also an admitted position that there was no assessment, even provisional, by the assessing authority prior to the final assessment made after the revised returns had been filed. Interest becomes payable under Section 24(3) on an H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 439 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

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

34Copy pinpoint34. Section 24(1) incidentally provided for a notice of assessment save as it was otherwise provided in Section 13(2). The tax under Section 13(2) was to be paid without any notice of demand. The Court drew support from the decision in JK Synthetics Ltd. (supra). We may also notice the following discussion: D “..In this respect the principles laid down in J.K. Synthetics Ltd. case [(1994) 4 SCC 276] fully apply even though the provisions of the Tamil Nadu General Sales Tax Act and the Rajasthan Act may not be identical. The principle to be kept in mind is, that, when the levy of interest emanates as a statutory consequence E and such liability is a direct consequence of non-payment of tax, be it under Section 215 of the Income Tax Act or under Sections 7(2)/7(2-A) read with Section 11-B(a) of the Rajasthan Sales Tax Act, 1954 (as discussed in the decision of this Court in J.K. Synthetics Ltd. case [(1994) 4 SCC 276] ) or under Sections 13(2)/24(3) read with Rule 18(3) under the Tamil Nadu General F Sales Tax Act, 1959, then such a levy is different from the levy of interest which is dependent on the discretion of the assessing officer. The default arising on non-payment of tax on an admitted liability in the case of self-assessment falls under Section 24(3) read with Rule 18(3) which attracts automatic levy of interest G whereas the default in filing incomplete and incorrect return falls under Rule 18(4) which attracts best-judgment assessment in which the levy of interest is based on the adjudication by the assessing officer. Therefore, Rule 18(3) and Rule 18(4) operate in different spheres…” H

p. 440 Copy page pinpoint

35Copy pinpoint35. We are of the view that the scheme of the Central Excise Act and the Rules 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 is any of the four contingencies referred to in Section 11A, then Section 11AB is attracted. The working of the parent Act is intricately intertwined with 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 rule 6 and on which the duty is paid is not the full value then under the scheme of Section 11A read with Section 11AB and the Rules, the assessee incurs liability for interest when in a case where there is full value found and it dates back to the date of removal.

36Copy pinpoint36. We have noticed that in this case admittedly that at the time goods were removed the price was not fixed. The assessee was fully conscious of the fact that it was subject to variation. Assessee must be imputed with knowledge that the value it was declaring was amenable to upward revision. The circumstances were indeed clearly both apposite and appropriate for the assessee to invoke the provisions of Rule 7 and seek an order for provisional assessment. In fact, take the example of manufacturer A and manufacturer B. Both remove goods under contracts which contain escalation clauses. Manufacturer A invokes Rule 7. It seeks permission for removal of goods on provisional assessment. E Though an order of final assessment has to be passed within a period of time it is capable of being extended without any time limit. Manufacturer- A on the basis of upward revision of the price with retrospective effect and acknowledging the value to be the value as provisionally assessed and as enhanced by the escalation arrived at under the escalation clause F pays the duty when the escalation comes into effect on the difference in the value under Rule 7. Apart from payment of the differential excise duty manufacturer A becomes also liable to pay interest from the date when the escalation would come into play on the arrival at the higher price having retrospective operation. Manufacturer B in identical facts clears the goods on the basis of self-assessment even though he is fully G aware that the value of the goods which is paid is not fixed and is amenable to upward revision. He deliberately chooses not to go in for provisional assessment. Thereafter, he pleads that though he was aware that the value is not fixed and the prices on removal was tentative and was amenable to change since he has paid duty on the tentative value he H

M/S STEEL AUTHORITY OF INDIA LTD. v. COMMISSIONER 441 OF CENTRAL EXCISE, RAIPUR [K. M. JOSEPH, J.]

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

37Copy pinpoint37. It was by Act No.26 of 1978 that Sections 11A, 11B and 11C were inserted in the Act. Though it was inserted by Act 26 of 1978, it was brought into force only in 1980. The words “levy, not paid, short levy and erroneously refunded” were not expressions which were however introduced for the first time through Section 11A. Rule 10 of the Central Excise Rules 1944 made under the Act as it read was as follows: “10. Recovery of duties not levied or not paid, or short-levied or not paid in full or erroneously refunded.—(1) Where any duty has not been levied or paid or has been short-levied or erroneously refunded or any duty assessed has not been paid in full, the proper officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid, or which has been short-levied, or to whom the refund has erroneously been made, or which has not been paid in full, requiring him to show cause why he should not pay the amount specified in the notice: Provided that— (a) where any duty has not been levied or paid or has been short- E levied or has not been paid in full, by reason of fraud, collusion or any wilful misstatement or suppression of facts by such person or his agent, or (b) where any person or his agent, contravenes any of the provisions of these rules with intent to evade payment of duty and has not paid the duty in full, or (c) where any duty has been erroneously refunded by reason of collusion or any wilful misstatement or suppression of facts by such person or his agent, the provisions of this sub-section shall, in any of the cases referred to above, have effect as if for the words ‘six months’, the words ‘five years’ were substituted. Explanation.—Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the period of six months, or five years, as the case may be. H

p. 442 Copy page pinpoint