2005 (9) TMI 387 - AT - Central Excise

Summary

Issues:
Grant of interest on refunded amount; Validity of interest claim under Section 11BB.

Analysis:
1. The appeal concerns the grant of interest on a refunded amount claimed by the respondent, which the revenue challenges. The respondent, an assessee with two units, utilized Modvat credit from Unit No. I for duty payment in Unit No. II. Upon revenue's objection, duty was debited from PLA, and a refund was claimed and sanctioned. The dispute revolves around the interest granted on this refund, per Section 11BB.

2. The revenue contests the interest grant on two grounds. Firstly, an appeal against the refund order is pending before the Commissioner (Appeals). Secondly, the refund for Unit I was seen as a regularization of credit, which could only occur post-adjudication of a show cause notice for duty recovery from PLA. The duty recovery adjudication for both units happened before the refund claim, thus questioning the interest entitlement.

3. The Commissioner (Appeals) rejected the department's appeal against the refund order. Concerning the regularization argument, the judgment agrees that duty payment from PLA should precede the refund sanction. Notably, Unit II improperly utilized Unit I's credit, which, if unused, would not have accrued interest. The correction of this irregularity did not warrant interest payment.

4. Section 11BB mandates interest on duty refunds, but Modvat credit, as per a Supreme Court ruling, is not considered duty. Therefore, adjusting credit does not fall under Section 11BB for interest payment. The judgment concludes that the interest claim is unfounded due to the nature of the credit adjustment and the subsequent duty payment from PLA.

5. The judgment criticizes the delay in paying duty from PLA, depriving the exchequer of rightful dues. It questions the legitimacy of the interest claim on the credited Modvat amount, which would have stayed dormant without earning interest if not utilized. Consequently, the judgment sets aside the interest grant, upholding the revenue's appeal.

6. The decision was pronounced on 30-9-2005, emphasizing the inapplicability of interest payment on the Modvat credit adjustment, ultimately ruling in favor of the revenue's appeal.