By TIOL News Service

AHMEDABAD, OCT 05, 2016. THE short question involved is -

The petitioner points out that the duty liability pertained to a period between 1.7.1991 to 31.5.1995. Section 11AA was introduced in the Act with effect from 26.5.1995 and, therefore, except for the duty liability arising during a short period of about one week, no interest liability would arise. The department contends that section 11AA would apply to all cases of unpaid duty, whether the liability arose before 26.5.1995 or whether the determination of the duty was made before or after the said date.

The High Court considered the submissions made by both sides and inter alia observed thus –

Significant differences between the two sections

+ First, that section 11AA covers all cases of non-payment of duty and did not unlike section 11AB, confine its application to the duty not being paid by the reason of fraud, collusion, etc.

+ Second, under section 11AA, the liability to pay interest would commence after three months of determination of duty under subsection (2) of section 11A or three months after introduction of section 11AA if the determination was made earlier, whereas under sub-section (1) of section 11AB, such liability would arise immediately upon the end of the month during which the duty ought to have been paid.

+ Third, under section 11AA, there was no clarification that interest liability would not arise in cases where the duty become payable before the date of introduction of the section, a feature introduced under subsection (2) of section 11AB of the Act. On the contrary, the proviso to section 11AA made it amply clear that in given set of circumstances, the section applies even in cases where the liability to pay duty had arisen earlier.

+ This proviso made the interest liability applicable in cases where the determination of duty under subsection (2) of section 11A was done before the section was introduced but provided for a period of three clear months after the introduction of the section for payment of such duty, failing which, the interest liability post such period of three months would arise, in contrast to subsection (2) of section 11AB.

+ Thus, the proviso to section 11AA carried a clear indication that the section was meant to apply even in cases where liability to pay the duty might have arisen earlier or even determination might have been completed before introduction of the section to the statute. This last distinction would be significant in context of the petitioner's contention that section 11AA did not have any retrospective applicability.

Retrospective application

+ The statute which creates new rights or liabilities, is ordinarily to be applied prospectively unless either expressly or by necessary implication, it is given retrospective effect. The fact that section 11AB was made expressly prospective is clear from the language used in subsection (2) of section 11AB.

+ In contrast, there are inbuilt indications in section 11AA that the said section would have a retroactive effect. The main body of section 11AA in its original form did not limit the liability to pay interest in cases where duty liability arose after introduction of the said section. It only provided that the interest would be payable when a person charged with duty by determination under sub-section(2) of section 11A failed to pay the same within three months from the date of such determination.

+ It may, however, be open to a person to contend that interest liability being a substantive liability, the statute would not cover the past cases before its introduction. However, the proviso to section 11AA would change the entire situation. Under such proviso, even in cases where the duty liability not only arose prior to the introduction of section 11AA but was also determined under subsection (2) of section 11A and in which cases, the liability to pay interest would commence after three months of the introduction of section 11AA to the Act on the component of duty which remained unpaid after such date.

+ In other words, the statute while creating a new provision for charging interest granted a moratorium of three months in cases where duty had remained unpaid on the date of introduction of the interest provision. If the duty is paid within such period, there would be no interest liability.

+ If even after completion of three months from introduction of the provision, the duty remained unpaid, the liability to pay interest would commence from such date.

+ By necessary implication, section 11AA was meant to apply to all cases where the duty remained unpaid after introduction of section 11AA to the statute.

+ In cases where whether the liability to pay the duty arose before or after the introduction of section 11AA but determination took place after the said date, the liability to pay interest would arise under the main body of the section.

+ In cases where the liability as well as determination both took place before the introduction of section 11AA, such cases would be covered under the proviso and liability to pay interest would commence after the end of three months from the date of introduction of section 11AA to the Act. Significantly, in neither case, the interest liability would be for a period prior to introduction of section 11AA. This provision, therefore, has retroactive applicability.

Implication of the words "Subject to the provisions contained in Section 11AB" inserted in section 11AA by FA, 1996

+ These words were added to section 11AA simultaneously with insertion of section 11AB with effect from 28.9.1996. Prior to this date, there was only one provision for charging the interest namely, section 11AA, which as noted, would cover all cases of unpaid duty whether on account of fraud, willful misstatement, collusion etc. or otherwise.

+ Section 11AB however, created a separate class and charged interest only in cases where non payment, short payment of erroneous refund of duty was by reason of fraud, collusion, etc. With introduction of section 11AB of the Act, thus the statute contained two provisions both charging interest.

+ In absence of any further clarification, section 11AA would cover all cases of unpaid duty and would not exclude those which were for the reason of fraud, collusion, etc.

+ Section 11AB was confined to a small class of cases of unpaid duty and it may be possible, in absence of any further clarification, to apply both the provisions in cases where the non payment of duty was on account of fraud, collusion, etc. To make the matters beyond any debate, the legislature inserted words "Subject to the provisions contained in Section 11AB" in Section 11AA.

+ When the legislature therefore, makes a provision subject to another provision, the former would yield to the latter and in other words, in case of a conflict, the provisions of the latter would prevail. [South India Corporation (P) Ltd. v. Secretary, Board of Revenue Trivandrum and another AIR 1996 Supreme Court 207, The State of Bihar v. Sir Kameshwar Singh AIR 1952 Supreme Court 252 , K.R.C.S. Balakrishna Chetty and Sons and Co. v. The State of Madras AIR 1961 Supreme Court 1152 , Ashok Leyland Ltd. v. State of T.N. and another = 2004-TIOL-09-SC-CT , Chandavarkar Sita Ratna Rao v. Ashalata S. Guram (1986) 4 Supreme Court Cases 447 , refers]

+ In context of section 11AA and section 11AB of the Act, therefore, the plain intention of the legislature while making section 11AA subject to section 11AB was to avoid any conflict between the two statutory provisions. The former would encompass all cases of unpaid duty except those covered by the latter which is confined to cases where such duty remained unpaid on account of fraud, misstatement, collusion, etc.

+ By providing that section 11AA would be subject to section 11AB, the legislature made it amply clear that those cases of unpaid duty by the reason of fraud, willful misstatement, etc. would be covered by section 11AB only and in a case which is covered by section 11AB, section 11AA would yield to the said provision.

+ The contention therefore, that for applying section 11AA, all conditions provided in section 11AB must be satisfied, is devoid of any merits.

+ The absurd results this contention would lead are plain to see. If for application of section 11AA, all the conditions of section 11AB are to be satisfied, section 11AA would have no independent existence and no purpose of enactment. Surely, the legislature cannot be seen to have framed two different provisions but both covering only one situation.

Implication of Board Circular 655/46/2002-CX. Dated: Aug 26,2002

+ The circular dated 26.8.2002 of the CBEC was issued specifically in the background of section 11AB of the Act… Neither the circular was meant to cover section 11AA nor the language used in section 11AA would permit us to apply such a clarification which was meant for section 11AB of the Act.

The petition was dismissed.

Quick reference: Extracts of the provisions referred –

A) Section 11AA inserted in the CEA, 1944 by FA, 1995 w.e.f 26.5.1995.

Section 11AA. Interest on delayed payment of duty. Where a person, chargeable with duty determined under sub-section (2) of section 11A, fails to pay such duty within three months from the date of such determination, he shall pay, in addition to the duty, interest at such rate not below ten per cent and not exceeding thirty percent per annum, as is for the time being fixed by the Board, on such duty from the date immediately after the expiry of the said period of three months till the date of payment of such duty.

Provided that where a person chargeable with duty determined under sub-section (2) of Section 11A before the date on which the Finance Bill, 1995 receives the assent of the President, fails to pay such duty within three months, from such date, then, such person shall be liable to pay interest under this section from the date immediately after three months from such date,till the date of payment of such duty.

B) Section 11AB inserted in the CEA, 1944 by the Finance Act, 1996 with effect from 28.9.1996:

Section 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 short paid or erroneously refunded, by reason of fraud, collusion or any willful misstatement of 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 the duty as determined under subsection (2), of Section 11A shall, in addition to the duty, be liable to pay interest at such rate not below ten per cent and not exceeding thirty per cent per annum, as is for the time being fixed by the Board, from the first date 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 subsection (2) of section 11A till the date of payment of such duty:

(2) For the removal of doubts, it is hereby declared that the 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."

C) Simultaneously, by the FA, 1996, the following words were added in the beginning of section 11AA:

"Subject to the provisions contained in Section 11AB"

D) By the FA, 2001 w.e.f 11.5.2001 sub-section (2) was inserted in section 11AA as under:

"(2) The provisions of subsection (1) shall not apply to cases where the duty becomes payable on and after the date on which the Finance Bill, 2001 receives the assent of the President."

E) Simultaneously from the same date 11.5.2001, by the FA, 2001 subsections (1) and (2) of section 11AB were re-cast to read:

"(1) Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person who is liable to pay the duty as determined under subsection (2), or has paid the duty under sub-section (2B), 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 date of the month succeeding the month in which the duty ought to have been paid under this Act or from the date of such erroneous refund, as the case may be, but for the provisions contained in subsection (2), or sub-section (2B), of section 11A, till the date of payment of such duty:

Provided that...

(2) The provisions of subsection (1) shall not apply to cases where the duty had become payable or ought to have been paid before the date on which the Finance Bill, 2001 receives the assent of the President."

(See 2016-TIOL-2393-HC-GUJ-CX)