Emco Ltd VS CCE Mumbai [2011(272) E.L.T. 136(Tri.-Mumbai.

)] The assessee manufacturing transformers supply them to buyers such as the state electricity boards following a tender system. They declared a base price on the cost of raw materials prevalent at the time of filing of tender documents. There exists a wide gap between date of tender filing and date of supply of transformers and the assessee protects their interest by incorporating a price variation clause. The differential prices on goods are recovered by the assessee and thereafter pay differential excise duty on such differential price. While paying differential duty no interests was paid by the assessee on account of delayed duty pays during a particular time period as per the provisions and a demand notice proposing to recover interest was issued. Aggrieved by the notice the assessees made their submission that there was a violation of principles of natural justice and that no show cause notice was issued and just a recovery notice was issued and thus demanded that the impugned order be set aside and demand for interest recovery be quashed by relying facts of a previous case. The D.R. contended that interest liability occurs automatically and a separate notice wasnt required for the same as per a previous tribunal verdict on the same issue. Thus hearing both the arguments the final judgment stated that the assesses had paid differential duties and during period of delayed payments notice for recovering interest while confirming duty demands arises automatically and the impugned order was set aside and the authority was directed to requantify the interest liability for a one year period and the appeal and stay application was disposed off.

CX - Sec 11AB - When normal time limit prescribed is one year from relevant date for recovery of duty it will be reasonable to adopt same period for recovery of interest as well - demand of interest beyond one year barred by limitation: CESTAT
By TIOL News Service MUMBAI, DEC 03, 2011: THE appellant are manufactures of transformers and supply the goods to various buyers like State Electricity Boards following a tender system. At the time of filing of tender documents, the assessee declares a base price based on the cost of raw materials prevalent at that time. Since there is a wide gap between the date of filing the tender and the date of supply of transformers, the assessee protects their interest by incorporating a price variation clause. The assessee recovers the differential prices on goods which have already been cleared by issuing supplementary invoices and thereafter, pays differential excise duty on such differential price. During the period from May 2004 to March 2009, the appellant paid differential duty of Rs.13,10,98,763/- on account of such price escalation after issue of supplementary invoices. The duty was paid by the appellant voluntarily and the department treated the duty payment as under section 11A(2B) of the CEA, 1944. However, they did not pay any interest on the delayed payment of duty as required under the said provision. Thereafter, the department issued a demand notice on 07.08.2009 under Section 11 of the Central Excise Act, 1944 proposing to recover interest amounting to Rs.21,63,332/- under Section 11AB of the Act, for the period from May 2004 to March 2009.

The demand was upheld by the Commissioner(A) and hence the appellant is before the CESTAT. It is submitted that ++ there has been a violation of principles of natural justice in as much as no showcause notice was issued to them asking them to show-cause as to why interest should not be recovered under the provisions of Section 11AB and only recovery notice was issued and hence the same is bad in law. ++ the demand ought to have been issued within one year as they had discharged the differential duty liability on account of price variation clause for the period from May 2004 to March 2009 on their own and hence bulk of the demand for interest is time barred. ++ There is no allegation of suppression, fraud, collusion or mis-statement of facts with intent to evade duty so as to invoke extended period of time. ++ following judgements are relied in support:i) Nirlon Ltd., Vs. UOI,
(2007-TIOL-159-HC-Mum-CX)

ii) CC, Madras Vs. TVS Whirlpool Ltd., 1996 (86) ELT 144 iii) CC Vs TVS Whirlpool Ltd., 2000 (119) ELT A1777 (SC) iv) CCE, Lucknow Vs. Annavarma Concrete (P) Ltd., v) CCE, Bangalore Vs. Bharat Heavy Electrical Ltd., vi) CCE, Pune Vs. SKF India Ltd.,
(2010-TIOL-1846-CESTAT-Del) (2010-TIOL-437-HC-Kar-CX)

(2009-TIOL-82-SC-CX)

vii) Order dt. 25/11/2009 passed by the Bombay High Court in Emco Ltd., Vs. UOI in WP No.9900 of 2009. The Revenue representative submitted that the interest liability occurs automatically and a separate written notice is not required for its recovery, if it is not included in the assessment order as has been held by the apex Court in the case of Commissioner of Trade Tax Vs. Kanhai Ram Thekedar, (2005-TIOL-76-SC-CT). It is also submitted that in the case Dodsal Engineering & Construction Pvt Ltd., Vs. CCE, Bangalore, (2010-TIOL-1674-CESTAT-Bang), it is held that there are no specific provisions in Section 11AA and 11AB of the Central Excise Act, 1944 for issue of notice for recovery of interest and interest liability, automatically arises once the duty liability is determined and hence the principles of natural justice had not been violated in ordering the recovery of interest while confirming the demand of duty. Reliance is also placed on the decision in Commissioner of Service tax Vs. Pepsi Cola, (2007-TIOL1417-CESTAT-Ahm), where it is held that no demand notice or written notice is required to be issued for confirmation of interest, which is a liability accruing as a consequence of delayed payment of duty. The Apex Court decision in the case of CCE Vs. International Auto Ltd., (2010-TIOL-05-SC-CX) wherein it was held that whenever there is a short payment or short levy of duty on the date of removal and the

differential duty is paid after clearance, interest also becomes leviable under the provisions of Section 11AB of the Central Excise Act is also relied upon. The Bench after considering the rival submissions observed 6. After hearing the arguments from both the sides, we are of the view that the appeal can be disposed of at this stage itself. Therefore, after allowing the stay application for waiver of pre-deposit of the dues adjudged, we take up the appeal itself for disposal. 7. As regards the contention of the appellant that a separate notice is required for demand of interest and principles of natural justice are violated if no such notice is issued, the same is devoid of merits. Interest liability arises whenever there is a delay in payment of duty and it is automatic and consequential, once there is a delay in payment of duty. 8. As has been held by this Tribunal in the case of Dodsal Engineering & Construction P. Ltd. Vs. CCE, Bangalore and Commissioner of Service Tax vs. Pepsicola India Marketing Co. (referred supra), no notice is required to be given separately for demand of interest and the hon'ble apex Court in the case of Kanhai Ram Thekedar referred to supra has also held a similar view. Similarly in the case of CCE Vs. SKF (I) Ltd., (2009-TIOL-82-SC-CX), the Hon'ble apex Court held that whenever the assessee recovered differential price by raising supplementary invoices and paid differential duty, it implies that there was a short payment of duty though completely unintended and without any element of deceit and such payment of differential duty clearly came under sub-section (2B) of the Section11A of the Central Excise Act, 1944 and attracted levy of interest under Section 11AB of the Act. Further, in the case of CCE Vs. International Auto Ltd. (2010-TIOL-05-SC-CX) , the apex Court further clarified the position as follows in para 8 of the judgment: "8. Section 11A of the Act deals with recovery of duty not levied or not paid or shortlevied or short-paid. The said section, which stood inserted by Act 25 of 1978, underwent a sea-change when Parliament inserted major changes in that section vide Act 14 of 2001 [with effect from 11th May, 2001] and Act 32 of 2003 [with effect from 14th May, 2003]. It needs to be mentioned that simultaneously Act 14 of 2001 also made changes to Section 11AB of the Act. In the case of S.K.F. India Limited [supra], it has been, inter alia, held, as can be seen from the above-quoted paragraphs, that sub-section 2(B) of Section 11A provides that the assessee in default may make payment of the unpaid duty on the basis of his own ascertainment or as ascertained by a Central Excise Officer and, in that event, such assessee in default would not be served with the Demand Notice under Section 11A(1) of the Act. However, Explanation (2) to the sub-section makes it clear that such payment would not be exempt from interest chargeable under Section 11AB of the Act. What is stated in Explanation (2) to sub-section 2(B) is reiterated in Section 11AB of the Act, which deals with interest on delayed payment of duty. From the Scheme of Section 11A(2B) and Section 11AB of the Act, it becomes clear that interest is levied for loss of revenue on any count. In the present case, one fact remains undisputed, namely, accrual of price differential. What does differential price signify? It signifies that value, which is the function of the price, on the date of removal/clearance of the goods was not correct. That, it was understated. Therefore, the price indicated by the supplementary invoice is directly relatable to the value of the goods on the date of clearance, hence, enhanced duty. This enhanced duty is on the corrected value of

the goods on the date of removal. When the differential duty is paid after the date of clearance, it indicates short-payment/short-levy on the date of removal, hence, interest which is for loss of revenue, becomes leviable under Section 11AB of the Act. In our view, with the entire change in the Scheme of recovery of duty under the Act, particularly after insertion of Act 14 of 2001 and Act 32 of 2003, the judgement of this Court in the case of M.R.F. Limited [supra] would not apply. That judgement was on interpretation of Section 11B of the Act, which concerns claim for refund of duty by the assessee. That judgement was in the context of the price list approved on 14th May, 1983. In that case, assessee had made a claim for refund of excise duty on the differential between the price on the date of removal and the reduced price at which tyres were sold. The price was approved by the Government. In that case, the assessee submitted that its price list was approved, by the Government on 14th May, 1983, but subsequent thereto, on account of consumer resistance, the Government of India directed the assessee to roll back the prices to pre-14th May, 1983 level and on that account, price differential arose on the basis of which the assessee claimed refund of excise duty which stood rejected by this Court on the ground that once the assessee had cleared the goods on classification, the assessee became liable to payment of duty on the date of removal and subsequent reduction in the prices for whatever reason cannot be made a matter of concern to the Department insofar as the liability to pay excise duty was concerned. In the present case, we are concerned with the imposition of interest which, as stated above, is charged to compensate the Department for loss of revenue. Be that as it may, as stated above, the Scheme of Section 11A of the Act has since undergone substantial change and, in the circumstances, in our view, the judgment of this Court in the case of M.R.F. Limited [supra] has no application to the facts of this case. In our view, the judgment of this Court in the case of SKF India Limited [supra] is squarely applicable to the facts of this case. 9. From the judgement of the apex Court cited above, it is absolutely clear that interest liability is a consequential liability whenever there is a delayed payment of duty and no separate notice is required for recovery of interest once the assessee has discharged the duty liability belatedly and such delayed payment of duty will come under the provisions of sub-section (2B) of Section 11A of the Central Excise Act and consequentially section 11AB comes into play automatically and interest liability has to be discharged. Section 11AB does not specify any time limit for recovery of interest. In view of the clear exposition by the hon'ble apex court of the scope of sections 11A and 11AB of the Central Excise Act, 1944, the reliance placed by the appellant on various judgments cited by them is of no avail as the hon'ble apex court's decision prevail over all others. Thus the only issue for decision is whether in the absence of a specific provision prescribing the time limit in the said section, can interest be demanded and recovered without any time limit. 10. A similar issue came up for consideration before the hon'ble apex Court in the case of GOI Vs. Citedal Fine Pharmaceuticals, 1989 (42) ELT 515 (SC). In that case the hon'ble apex Court held that in the absence of any period of limitation, it was settled that the authority was to exercise the power within a reasonable period. In that case, the hon'ble apex Court in para 6 of the judgment, inter alia, held as follows:"In the absence of any period of limitation it is settled that every authority is to exercise the power within a reasonable period. What would be reasonable period, would depend upon the facts of each case. Whenever a question regarding the

inordinate delay in issuance of notice of demand is raised, it would be open to the assessee to contend that it is bad on the ground of delay and it will be for the relevant officer to consider the question whether in the facts and circumstances of the case, notice or demand for recovery was made within reasonable period. No hard and fast rules can be laid down in this regard as the determination of the question will depend upon the facts of each case." 11. The Central Excise Act provides a time limit of one year from the relevant date for demand of duty in normal circumstances and a time limit of five years for demand of duty in cases where fraud, suppression of facts, collusion, etc. are involved. In the instant case, there is no allegation that the assessee delayed payment of duty on account of any of these elements. On the other hand, it is very clear that the assessee had discharged the differential duty liability on their own. The differential duty payments were made during the period from May, 2004 to March, 2009 and were also reflected in the corresponding monthly returns filed by the assessee. Thus, the department was fully aware that the assessee was raising supplementary invoices for recovery of differential prices subsequent to the clearance of the goods and they were also discharging differential duty liability on issue of supplementary invoices. Therefore, it was incumbent on the department to recover interest which the assessee had failed to pay within a reasonable period. In a similar case, the hon'ble apex court in the case of Commissioner vs. TVS Whirlpool Ltd. [2000(119) ELT A177 (SC)] held as follows "It is only reasonable that the period of limitation that applies to a claim for the principal amount should also apply to the claim for interest thereon." Respectfully following the said decision, we hold that when the normal time limit prescribed is one year from the relevant date, (the date of filing of return) for recovery of the principal amount, ( excise duty, in this case), it will be reasonable to adopt the same period for recovery of interest as well. 12. Therefore, in the instant case, we are of the view that the department should have initiated the proceedings for recovery of interest within a period of one year from the date of filing of monthly returns. Since the demand notice is issued only on 07/08/2009, the demand for recovery of interest for the period prior to July, 2008 will be beyond the reasonable period of one year and, therefore, the same is barred by limitation. Only for the period from July 2008 (for which the return is required to filed in August 2009), the demand for interest can be considered to be within the reasonable period. Accordingly, we set aside the impugned order and direct the original adjudicating authority to re-quantify the interest liability for the normal period of one year as discussed above and communicate the same to the appellant who shall, thereafter, discharge the interest liability." The appeal and the stay application were disposed of accordingly. In passing : Board's letter F. No. 354/118/96-TRU, dated 6-1-1997 "4. Clarification has been sought for whether it is obligatory that reference to Section 11AB should be made in the adjudication orders. It is really not necessary. Section 11AB is a mandatory provision for charging interest in those cases where the amount of duty has been evaded. The section also provides the period for which the interest will have to be paid and the manner in which the interest has to be

computed. Legally, therefore, interest is chargeable even if the provisions of Section 11AB are not mentioned in the adjudication order. However, it is for the adjudicating authority to consider whether they would like to refer to Section 11AB at their discretion in the adjudication order." (See
2011-TIOL-1585-CESTAT-MUM

in 'Excise')