Re-birth of the demon – proposed section 11AA deserves some contempt

NEW DELHI, FEB 28, 2011: NOT even the Finance Act, 1996 could achieve so much by enacting the mandatory provisions of section 11AB and section 11AC of the Central Excise Act, 1944 what the proposed amendments by the Finance Bill, 2011 seeks to.

Litigations concerning both the aforesaid sections snaked their way up to the Apex Court and the matter had come to be stabilized by way of decisions in Dharamendra Textile Processors [2008-TIOL-192-SC-CX-LB] and in the case of SKF India Ltd. [2009-TIOL-82-SC-CX].

In the days to come, assessees would have no qualms in terming the Union Budget 2011 as one which has made them worried like never before.

If the proposed new sections 11A and 11AA are anything to go by then rest assured that the same would be put to the litmus test at the hands of the Court of law.

Before we move to the section 11AA, let us take a leaf out of the great treatise Manusmriti:

“ Let the King not cut his own roots by levying no taxes; nor the root of other men by excessive greed, for by cutting up his own root or others roots, he makes himself and other wretched ”

Vide clause 61 of the Finance Bill, 2011 the sections 11AA and 11AB of the Central Excise Act is being substituted by a new section 11AA, which reads thus –

“ 11AA. (1) Notwithstanding anything contained in any judgment, decree, order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder, the person, who is liable to pay duty , shall, in addition to the duty, be liable to pay interest at the rate specified in sub-section (2), whether such payment is made voluntarily or after determination of the amount of duty under section 11A.

(2) Interest, at such rate not below ten per cent, and not exceeding thirty-six per cent per annum, as the Central Government may, by notification in the Official Gazette, fix, shall be paid in terms of section 11A after the due date by the person liable to pay duty and such interest shall be calculated from the date on which such duty becomes due up to the date of actual payment of the amount due.

(3) Notwithstanding anything contained in sub-section (1), no interest shall be payable where, -

++ the duty becomes payable consequent to the issue of an order, instruction or direction by the Board under section 37B; and

++   such amount of duty is voluntarily paid in full, within forty-five days from the date of issue of such order, instruction or direction, without reserving any right to appeal against the said payment at any subsequent stage of such payment.”

This is what the letter by the J.S (TRU-I) has to say in paragraph 6.2 of his letter D.O.F No. 334/3/2011-TRU dated 28.02.2011 under the caption ‘Important Legislative Amendments':-

“6.2 The provisions of sections 11AA and 11AB have been merged into a revised section 11AA. Under the proposed provisions, interest would be payable on any duty not levied, short-levied, not levied, short paid, or erroneously refunded from the first date of the month succeeding the month in which the duty ought to have been paid under the Act or from the date of erroneous refund. The provision of the existing section 11AA are proposed to be omitted.”

On reading the contents of the new section 11AA which would be substituting sections 11AA and section 11AB of the CEA, 1944 [ obviously existing section 11AA is not being omitted ], it appears that the TRU letter has inadvertently sought to add much more to the new provision than that which is proposed.

++ The section 11AA (proposed) merely employs the words “ the person, who is liable to pay duty” and does not mention anything about ‘ duty erroneously refunded' as existing in the present section 11AB. Without usage of these words, one cannot presume that interest is also required to be paid on ‘duty erroneously refunded' .

++ Secondly, unlike the current provisions of section 11AA/11AB, the interest would be required to be computed on the entire duty as determined u/s 11A. There is no scope for reducing the interest liability if the duty determined to be payable is reduced by the Commissioner (Appeals), Appellate Tribunal or, as the case may be, the court . The opening words of sub-section (1) make this crystal clear.

++ By the way, in sub-section (2) of the proposed section 11AA, is it not a typographical error in making a reference to section 11A.

Needless to mention these draconian provisions of law would never be welcomed by an assessee.