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M/s. Steel Authority of India Ltd. v. Commissioner of Central Excise, Raipur

Civil Appeal · 2019 INSC 645Decided 8 May 2019
Civil Appeal No. 2150 of 2012
Chief Justice Ranjan Gogoi · Justice Uday Umesh Lalit · Justice K.M. Joseph

Background

A two-judge Bench of the Supreme Court had doubted the correctness of two earlier two-judge decisions (CCE v. SKF India Ltd. and CCE v. International Auto Ltd.) and referred the question to this three-judge Bench for resolution. Steel Authority of India (SAIL), the lead case, had sold rail products to Indian Railways at a price later revised upward with retrospective effect under an escalation clause, and paid the resulting differential excise duty of about Rs. 142 crores; the excise department then demanded interest under Section 11AB of the Central Excise Act, 1944 on that differential duty, which SAIL contested. The core legal question was whether interest runs from the date of the original (provisional) removal of goods or only from when the price escalation was later finalized.

Decision Breakdown

The Supreme Court held that interest under Section 11AB is payable from the date the duty "ought to have been paid" at the time of removal of goods, even where the final differential duty only crystallizes later because of a retrospective price escalation clause that was within the assessee's knowledge all along. It reasoned that the provisionally fixed price at the time of removal, once finally revised retrospectively, is treated as the price "at the time of removal" for interest purposes, and that reading Section 11AB otherwise would do violence to the plain words of the Act and Rules. The Court concurred with and reaffirmed the correctness of the SKF India and International Auto Ltd. decisions, resolving the doubt that had prompted the reference, and dismissed the entire batch of appeals (including SAIL's).

Lesson Learnt

Where a sale price is contractually variable (e.g., subject to a later price-escalation clause) and is later revised retrospectively, a business cannot escape interest on the resulting shortfall in excise duty by arguing the shortfall only became known later: the law treats interest as running from the original date of removal of goods.

Official source (sci.gov.in)View Judgment (PDF)

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