2013 (6) TMI 88 - HC - Central Excise

Interest on Refund u/s 11BB - claim of interest on interest - long battle for getting refund of amount deposited during litigation - held that - It is true that the decision of this court in case of Afrique Tradelinks Pvt. Ltd. (2004 (2) TMI 651 - High Court of Gujarat) and the Apex Court in the case of Ranbaxy Laboratories Ltd. (2011 (10) TMI 16 - Supreme Court of India) were rendered subsequent to the Deputy Commissioner taking a contrary view. However, the Departmental clarification itself was sufficiently clear and was binding on the Deputy Commissioner. Reference to the decision of the Tribunal in case of Bharat Heavy Electricals Ltd. (2001 (10) TMI 143 - CEGAT, COURT NO. I, NEW DELHI)was wholly erroneous. All that the Allahabad High Court in case of Super Electronics (1999 (5) TMI 37 - HIGH COURT OF JUDICATURE AT ALLAHABAD) provided was for interest after three months of the date of refund application. The petitioners were made to engage in continuous litigation for years together before initially their refund claims were sanctioned even after the issue of classification by the Board and the appeal was decided in their favour. Thereafter, on such refund, interest was improperly denied. Ordinarily grant of interest flows either from statutory provision or contractual relations between the parties. In the present case, there is no statutory provision providing for interest on interest. In the present case, however, we find that the excise authorities acted rather unjustly and initially delayed not only the refund, but thereafter, unjustly withheld the interest payable thereon. At all stages, the petitioners had to approach higher authorities in further appeals. Department cannot avoid the liability of accounting for interest on the delayed payment of interest to the extent the same was paid late. - interest on interest allowed at the rate of 9%. - Decided in favor of assessee.

Summary

Issues Involved:
1. Classification of goods under the Central Excise Tariff Act.
2. Refund of excess duty paid under protest.
3. Applicability of interest on delayed refund under Section 11BB of the Central Excise Act.
4. Claim for interest on delayed payment of interest.

Detailed Analysis:

1. Classification of Goods:
The petitioners, a company engaged in the manufacture of plastic products, disputed the classification of their goods under the Central Excise Tariff Act. They classified their goods under Chapter 39, which was more favorable in terms of duty and exemptions. However, the Revenue classified these goods under Chapters 54 and 63 as textile articles, leading to a higher duty. The Madhya Pradesh High Court in the case of Raj Pack Well Ltd. ruled in favor of classifying such goods under Chapter 39. Following this, the Central Board of Excise and Customs (C.B.E. & C.) issued a Circular No. 8/92, clarifying that the goods should be classified under Chapter 39.

2. Refund of Excess Duty:
The petitioners paid higher duty under protest from February 1987 to February 1992. After the appellate authority ruled in their favor, they filed a refund claim for Rs. 1,20,63,349/-. The Assistant Commissioner sanctioned only Rs. 11,05,000/- and credited the rest to the Consumer Welfare Fund, citing unjust enrichment. The Commissioner (Appeals) later allowed a further refund of Rs. 1,02,53,118/-.

3. Applicability of Interest on Delayed Refund:
The Commissioner (Appeals) directed that the refund should include interest under Section 11BB of the Central Excise Act. However, the Deputy Commissioner denied interest, stating that entitlement to refund arises only when the appeal is finally disposed of in the party's favor. This interpretation was based on a CEGAT decision in Bharat Heavy Electricals Ltd. The Gujarat High Court clarified that interest under Section 11BB should be payable from three months after the refund application, not from the date of the appellate order. This was supported by a Finance Ministry circular and decisions in Afrique Tradelinks Pvt. Ltd. and Ranbaxy Laboratories Ltd.

4. Claim for Interest on Delayed Payment of Interest:
The petitioners claimed interest on the delayed payment of interest for the period between 1-4-2003 and 23-9-2004. The Assistant Commissioner rejected this claim, stating no statutory provision supported it. The Gujarat High Court, however, found that the Department acted unjustly by delaying the refund and withholding interest. The Court ruled that the Department must pay simple interest at 9% per annum on the delayed interest amount of Rs. 1,06,12,678/- for the specified period.

Conclusion:
The Gujarat High Court directed the respondents to pay simple interest at 9% per annum on the delayed interest amount, emphasizing that the Department's actions were unjust and caused undue hardship to the petitioners. The petition was allowed, and the respondents were ordered to comply within eight weeks.