IMPORTANT POINT
Short payment of duty for whatever reason attracts section 11AB and is liable to levy of interest.

JUDGMENT

Aftab Alam, J.—

1. Just a few weeks ago in Union of India Vs. M/s Rajasthan Spinning & Weaving Mills1 (Appeal arising from SLP (C) No.15927 of 2007) we had the occasion to examine the nature and scope of the penalty provision in the Central Excise Act as contained in section 11AC, one of the four sections, forming a quartet, concerning recovery of unpaid duty, interest on deferred payment/realisation of duty and penalty for non-payment of duty. In this case we are called upon to consider the conditions that would attract the levy of interest on excise duty not levied or short levied, not paid or short paid or erroneously refunded as provided under sections 11A, 11AA and 11AB of the Act. It may thus be seen as the sequel to the earlier decision in M/s. Rajasthan Spinning & Weaving Mills.

2. The facts of the case are fairly simple and admitted by both sides. The respondent-assessee is engaged in the manufacture and sale of ball-bearings and textile machine parts. It sold goods manufactured by it on certain prices on payment of excise duty leviable on the price on which the goods were sold. Later on, there was a revision of prices with retrospective effect. Following the revision the assessee demanded from its customers the balance of the higher prices and issued to them supplementary invoices. At the same time it also paid the differential duty on the goods sold earlier. The Revenue took the view that the assessee was liable to pay interest on differential duty. The assessee was given a notice dated April 4, 2006 demanding Rs.95,590/- as interest on delayed payment of duty under section 11AB of the Central Excise Act and further asking it to show cause why penalty may also not be imposed on it under section 37(3) of the Act. The assessee gave its reply stating that the payment of differential duty was made by it at the time of issuing supplementary invoices to the customers and, therefore, there was no question of charging interest much less any penalty. However, the Assistant Commissioner Central Excise, Pune II Division, confirmed the demand of interest by his order dated June 5, 2006 and further imposed a penalty of Rs.5, 000/- against the assessee. The assessee took the matter in appeal before the Commissioner (Appeals) Central Excise, Pune I, who by his order dated August 30, 2006 allowed the appeal and set-aside the order of the Assistant Commissioner. The Revenue then brought the matter before the Customs, Excise and Service Tax Appellate Tribunal but its appeal was dismissed by order dated January 3, 2008. The Tribunal, following certain decisions of the Bombay High Court held that no interest was chargeable where there was no time-gap between the payment of the differential duty and issuance of supplementary invoices to the customers on the basis of upward revision of prices in respect of the goods sold earlier.

3. Aggrieved by the order of the Tribunal, the Revenue has come to this Court in appeal.

4. In Rajasthan Spinning & Weaving Mills we noted that the three issues of recovery, interest and penalty arising from non-levy or short levy of duty, non-payment or short payment of duty or erroneous refund of duty are dealt with under sections 11A (recovery of duties), 11AA and 11AB (interest on delayed payment of duty) and 11AC (penalty for short levy or non levy of duty) of the Act. Section 11A is a long section which has become longer by the insertion of sub-sections by later amendments. In its present form section 11A reads as under.

“11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.-(1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or [erroneously refunded, whether or not such non-levy or non-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 provisio