2006 (5) TMI 232 - AT - Central Excise

Refund - finalization of provisional assessment - recovery of sums due to Government - Interest u/s 11BB - HELD THAT - In this case the refund is actually due to the appellant. But the appellants by virtue of certain Orders-in-Original owed money to the Government. The important thing to be noted is that these amounts decided by the Orders-in-originals were not final. Every Order-in-Original can be appealed. Therefore at the first stage of confirmation of a demand no finality has been reached. To put in other words those demands cannot be called as arrears. There is a possibility that these demands could be set aside by the Commissioner (A) or the Tribunal or any other judicial forum. That is why large number of decisions hold that refund cannot be adjusted against the demands which are sub-judice. In the present case the action of the authorities in adjusting the refund is against the legal provisions. Section 11 should be involved only when the demands have reached finality and should not be invoked even at the initial stage. Section 11BB provides interest for delayed refunds. This is squarely applicable to the present case. The Commissioner (A) has not at all given any reason as to why the said section is not applicable. Thus we allow the appeal with consequential relief.

Summary

Issues:
1. Adjustment of refund against arrears without full refund on finalization of appeals.
2. Applicability of Section 11BB for interest on delayed refunds.
3. Legal validity of adjusting refund against demands under challenge.
4. Compliance with Circulars issued by the Board regarding coercive actions.
5. Entitlement to interest under Section 11BB based on case laws.

Issue 1: Adjustment of refund against arrears without full refund on finalization of appeals:
The appeal was against the Order-in-Appeal where the Asst. Commissioner adjusted the refund against arrears due from the appellants, which were not fully refunded after finalization of appeals against original orders. The Commissioner (A) acknowledged that part of the amounts was refunded but held that the remaining amounts were payable to the appellants. The appellants contended that the adjustment by the Asst. Commissioner was illegal as the demands were not final. The Tribunal noted that the demands were not confirmed as they were appealable, and hence, the adjustment of refund against such demands was against legal provisions.

Issue 2: Applicability of Section 11BB for interest on delayed refunds:
The appellants argued that Section 11BB should apply as the sanctioned refund was not paid within three months. They cited the Gujarat High Court judgment in Vipor Chemicals (P) Ltd. v. UOI to support their claim for interest on delayed refunds. The Tribunal agreed that Section 11BB should be invoked for delayed refunds, especially when the refund becomes payable on setting aside the Order-in-Original by the Appellate Authority. The Commissioner (A) failed to provide adequate reasons for rejecting the claim of interest under Section 11BB.

Issue 3: Legal validity of adjusting refund against demands under challenge:
The Tribunal emphasized that Section 11 should only be invoked when demands have reached finality and not at the initial stage. Refunds cannot be adjusted against demands under challenge in appellate fora, as every Order-in-Original can be appealed, indicating the lack of finality. The Tribunal found that the action of authorities in adjusting the refund against demands under challenge was against legal provisions. Section 11BB, which provides for interest on delayed refunds, was deemed applicable in this case.

Issue 4: Compliance with Circulars issued by the Board regarding coercive actions:
The appellants argued that the Asst. Commissioner's action of adjusting the entire refund amount against demands disregarded the Board's Circular, which prohibited coercive actions for recovery pending disposal of stay applications. The Tribunal agreed that the Departmental officers are bound by Circulars issued by the Board and found the Asst. Commissioner's action arbitrary for not adhering to the Circular.

Issue 5: Entitlement to interest under Section 11BB based on case laws:
The appellants presented various case laws supporting their entitlement to interest under Section 11BB, such as CCE, Jaipur v. Instrumentation Ltd. and Executive Engineer KSEB v. CCE, Cochin. These cases emphasized the applicability of interest on delayed refunds. The Tribunal considered these precedents and ruled in favor of the appellants, allowing the appeal with consequential relief.

In conclusion, the Tribunal allowed the appeal, highlighting the illegality of adjusting refunds against demands under challenge, the applicability of Section 11BB for interest on delayed refunds, and the necessity to comply with Circulars issued by the Board. The decision was based on legal provisions, precedents, and the fundamental principle that refunds should not be adjusted against demands that lack finality due to being subject to appeal.