Interest on differential duty paid due to price escalation - Issue covered by SC decision in case of SKF India Ltd - No reason

to take different view

by following Karnataka HC decision in BHEL case: High Court

By TIOL News Service

CHENNAI, OCT 22, 2014: THE issue is whether the assessee is liable to pay interest on differential duty paid on supplementary invoices due
to price escalation. The assessee is in appeal before the High Court against the order of Tribunal confirming the demand by following the ratio
of the Supreme Court decision in case of SKF India Ltd - 2009-TIOL-82-SC-CX.

The assessee tried to distinguish the ratio of SKF India Ltd and relied on the decision of Karnataka High Court in case of BHEL Ltd -
2010-TIOL-437-HC-KAR-CX which is in favour of the assessee.

After hearing both sides, the High Court held:

Apropos of the first plank of argument made by the appellants that unless there is a demand, there is no question of payment of
interest, such an argument would have no legs to stand, as the Supreme Court in SKF India Ltd. case, has clearly set out that
Section 11A of the Act puts the cases of non-levy or short levy, non-payment or short payment or erroneous refund of duty in
two categories, that is to say (i) when the non-payment or short payment etc. of duty is for a reason other than deceit; the
default is due to oversight or some mistake and it is not intentional; and (ii) when 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.

The Supreme Court in SKF India Ltd

. case, further held that payment of differential duty by the assessee at the time of issuance of supplementary invoice to the
customer demanding the balance of the revised prices clearly falls under the provisions of Section 11A(2B) of the Act. The
Supreme Court has clearly held that such payment of differential duty at the time of issuance of supplementary invoices would
not be exempt from interest chargeable under Section 11AB of the Act.

The decision of the Karnataka High Court in Bharat Heavy Electricals Ltd.
case, holding that interest is not payable on supplementary invoices on the ground that there was no demand, is not justified in
view of the emphatic finding rendered by the Supreme Court in SKF India Ltd. case.

We are not inclined to take a different view merely on the ground that the Special Leave to Appeal filed by the Revenue against
the decision of the Division Bench of the Karnataka High Court in Bharat Heavy Electricals Ltd
. case, was dismissed by the Supreme Court by order dated 3.12.2010 made in Special Leave to Appeal.

Section 11AA of the Act, which came into effect from 8.4.2011, will have no bearing to the facts of the present case. In any
event, the decision of the Supreme Court in SKF India Ltd
. case, squarely applies to the period in question and the law declared by the Supreme Court binds the issue in question.

Accordingly, the High Court dismissed the appeal filed by the assessee.

(See 2014-TIOL-1847-HC-MAD-CX )

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