Summary: The supplied article examines whether interest is payable on belated payment of Special Additional Excise Duty, Additional Duty of Customs and IGST on imports, particularly where export obligations under schemes such as advance authorisation are not fulfilled. It states that statutory machinery provisions adopted from the Central Excise Act, 1944 and Customs Act, 1962 should be read as a whole. According to the article, where an adopting provision uses the word “including,” the specifically mentioned matters are illustrative rather than exhaustive, so the absence of separate references to “recovery” or “interest” does not by itself exclude those provisions. The article discusses Section 140(3) of the Finance Act, 2002 for Special Additional Excise Duty and Section 3(12) of the Customs Tariff Act, 1975 for Additional Duty of Customs and IGST. It also refers to amendments made by the Finance (No. 2) Act, 2024, stating that express references to assessment, interest, recovery and other matters make the position explicit. The author’s personal view is that applicable interest can operate through the adopted machinery provisions even for belated payments relating to the period before the 2024 amendment.
Interest on Belated Payment of Special Additional Excise Duty, Additional Duty of Customs and IGST on imports- “Including” Is Illustrative, Not Exhaustive
1. Trade and industry including importers as well as departmental officers are actively debating the question these days on whether interest is payable if the Integrated tax is paid belatedly due to failure to fulfil export obligation under various schemes like advance authorization. What makes the issue more interesting is that no such debate appears to have taken place for the last few decades under the unamended Section 3(12) of the Customs Tariff Act, 1975 in respect of belated payment of additional duty of customs (CVD) levied under Section 3(1) of the Customs Tariff Act,1975 with machinery provisions contained in Customs Act,1962 as per the said Section 3(12). We may also examine hereunder on machinery provisions to administer levies such as Special Additional excise duty imposed through the Finance Act,2002.
2. The question whether interest is payable on belated payment of Special Additional Excise Duty (SAED)levied under the Finance Act, 2002 on petrol and diesel, Additional Duty of Customs levied under Section 3(1) and IGST levied under Section 3(7) of the Customs Tariff Act, 1975 on goods imported, has to be examined by looking at the complete statutory scheme under which these levies were created and collected. New levies are imposed through various Finance Acts as and when required. The additional duty of customs in respect of Schedule-IV goods like tobacco and petroleum products and Integrated tax on import of goods are imposed as per the Section 3 of the Customs Tariff Act. It may be noted that machinery provisions on assessment, recovery with interest, refund, appeal, penalty and other consequential matters, were entrusted to the machinery provisions contained in the Central Excise Act, 1944 for SAED and the Customs Act, 1962 for CVD and IGST on import of goods. Once such machinery provisions are made applicable, they cannot be artificially divided by contending that only the provisions specifically mentioned in the borrowing provision will apply.
3. When the adopted statutory provision has used the expression “including”, the matters expressly mentioned have to be understood as illustrative and not exhaustive. Therefore, the mere fact that “recovery” or “interest” are not separately mentioned in the adopted machinery provision, by itself, cannot lead to the conclusion that recovery of special additional excise duty not paid cannot be made or interest is not payable as per the machinery provisions so adopted. The example of Special Additional Excise Duty is taken here specifically to understand this proposition: although Section 140(3) of the Finance Act, 2002 does not specifically use the words “recovery” and “interest”, the provisions of the Central Excise Act relating to recovery of duty and interest on delayed payment can operate because Section 140(3) adopts the provisions of the Central Excise Act for the levy and collection of the Special Additional Excise Duty and uses the word “including” while referring to certain provisions.
4. We are aware that the Special Additional Excise Duty was imposed through the Finance Act, 2002 on petrol and diesel. Section 140(1) provided for levy and collection of Special Additional Excise Duty, while Section 140(2) made it clear that the duty would be in addition to other duties of excise. More importantly, Section 140(3) provided that the provisions of the Central Excise Act, 1944 and the rules made thereunder, “including those relating to refunds and exemptions from duties and imposition of penalty”, shall, as far as may be, apply in relation to the levy and collection of the Special Additional Excise Duty. The significance of the word “including” cannot be ignored. The lawmakers did not say that only provisions relating to refunds, exemptions and penalties would apply to administer the levy imposed through the Finance Act, 2002. Those provisions were specifically mentioned as examples of the many provisions of the Central Excise Act which were to be applied for the levy and collection of the Special Additional Excise Duty. The word “including” is therefore not a word of restriction but one of enlargement. It follows that provisions concerning determination and recovery of duty, interest, appeals and other machinery matters necessary for effective levy and collection are also capable of being attracted.
5. Consider the case of a refinery which is liable to pay Special Additional Excise Duty but failed to discharge the duty within the prescribed time. If the said duty is not paid, the Department can invoke Section 11A of the Central Excise Act and issue a show cause notice demanding the said duty with interest and penalty. Section 11A of the Central Excise Act,1944 provided the machinery for recovery of duty which had not been levied or paid, or had been short-levied or short-paid. Once Section 140(3) made the provisions of the Central Excise Act applicable to the levy and collection of Special Additional Excise Duty, the recovery mechanism under Section 11A becomes relevant and the refinery/ assessee cannot plead that a show cause notice under Section 11A cannot be issued to them merely because recovery of duty is not specially mentioned under Section 140(3) of the Finance Act, 2002. Similarly, where the Central Excise Act provided for interest on delayed payment under Section 11AA of the Central Excise Act, 1944, the assessee cannot plead that they need not pay interest on the delayed payment of Special Additional Excise Duty merely because Section 140(3) specifically referred to refunds, exemptions and penalties without separately mentioning recovery and interest. Such an interpretation would effectively make the word “including” redundant and make the borrowed provisions a nullity.
6. If the intention was to restrict the application of the Central Excise Act only to refunds, exemptions and penalties, the provision could have expressly stated so. The machinery for assessment, recovery, interest and appeals forms part of the statutory framework through which the cess was to be administered and collected.
7. This approach is consistent with the fundamental distinction between a charging provision and a machinery provision. The charging provision creates the liability and identifies the taxable event and the amount or rate of the levy. The machinery provision provides the mechanism through which the liability is determined, collected and recovered. The law makers can create the substantive levy under one enactment and adopt the machinery of another enactment for its administration. In such a situation, it is not necessary for the Finance Act creating the levy to reproduce every provision of the Central Excise Act relating to assessment, recovery, interest, refund, appeal and penalty. The very purpose of the incorporation clause is to avoid such duplication. Therefore, once the Finance Act says that the provisions of the Central Excise Act and the rules made thereunder shall apply to the levy and collection, and uses the expression “including” before mentioning certain specific provisions, the enumeration cannot be treated as exhaustive.
8. The same principle equally applies to Customs Tariff Act provisions. The same legislative technique was adopted in relation to Additional Duty of Customs and IGST under the Customs Tariff Act. Section 3 created additional duty and Integrated tax on imported goods, and the Customs Act, 1962 and the rules and regulations made thereunder were made applicable for administering and collecting the levy. The Taxation Laws (Amendment) Act, 2017 to cater to the needs of GST law with integrated tax, for example, contained an amendment to Section 3(12) providing that the provisions of the Customs Act, 1962 and the rules and regulations made thereunder, “including those relating to drawbacks, refunds and exemption from duties, shall, so far as may be, apply to the duty, tax or cess chargeable under the section as they apply in relation to duties leviable under the Customs Act. The expression “including” again assumes importance. The Customs Act machinery was adopted because the levy had to be assessed and collected through the established customs administration.
9. It is important in this context to appreciate the significance of recovery and interest provisions. Interest is compensatory in character and represents the consequence attached by law to retention of Government revenue beyond the prescribed date. Therefore, where the relevant machinery provisions have been validly incorporated, the absence of the words “recovery” and “interest” from an illustrative list of provisions cannot by itself extinguish the liability. What has to be examined is whether the parent enactment, read with the incorporated machinery provisions, supplies the necessary statutory authority. The Special Additional Excise Duty example demonstrates precisely how this principle operates: Section 140(3) does not separately say “recovery” or “interest”, yet the recovery and interest provisions of the adopted Central Excise machinery can operate for administering and collecting the levy.
10. It is worthwhile to note that the amendments made to Section 3(12) of the Customs Tariff Act and the Finance Act,2002 by the Finance (No. 2) Act, 2024, expressly referring to provisions relating to assessment, non-levy, short-levy, refunds, exemptions, interest, recovery, appeals, offences and penalties, may be viewed in this legislative context. The amendment certainly makes the position explicit by listing matters which may otherwise have been covered by the broader machinery provision. But an amendment which expressly mentions “recovery” and “interest” does not necessarily establish that “recovery” and “interest” were legally impossible before the amendment. The amendment may be understood as an amendment made by way of abundant caution, to put the matter beyond doubt and eliminate possible arguments arising from the wording of the earlier provision. Even the amendment uses the word “including” in the newly substituted Section 3(12) of the Customs Tariff Act,1975. Just because the word ‘remission’ is missing in the newly inserted provision also, the department cannot deny the benefit of ‘remission’ under Section 23 of the Customs Act and insist on payment of IGST on goods that were imported but were abandoned due to some unforeseen circumstances.
11. The legislative history of these provisions also supports the view that lawmakers intended the Central Excise and Customs statutes to function as machinery enactments for the collection of the newly created levies. Otherwise, every Finance Act creating a cess or additional duty would have had to separately reproduce provisions relating to assessment, recovery, interest, refund, appeal, penalty and other procedural matters. Such duplication was obviously not the legislative intention. The use of expressions such as “the provisions of the Central Excise Act and the rules made thereunder”, followed by the word “including”, demonstrates a conscious legislative decision to borrow an existing and comprehensive machinery. The specifically mentioned matters were intended to clarify the application of the machinery, not to exclude every provision not expressly named.
12. The example of Special Additional Excise Duty under the Finance Act, 2002 demonstrates that recovery of the duty and payment of interest on delayed payment can operate through the adopted Central Excise machinery even though the borrowing provision does not specifically use the words “recovery” and “interest”. The same principle is relevant to Additional Duty of Customs and IGST under the Customs Tariff Act. For example, the exemption availed on integrated tax on imported goods under some schemes like advance authorisation can be made good by paying applicable Integrated tax with interest in case of genuine difficulty in meeting the export obligation.
13. Accordingly, I am of the humble view that the correct approach is to read the charging provision and the adopted machinery provisions together as one statutory method and pay applicable interest in case of belated payment of duty, tax, or cess even for the period prior to 2024 amendment.
(Views expressed are personal views of the author.)
