2007 (9) TMI 80 - HC - Central Excise

Interest on delayed refund of unutilized input credit Credit can be regarded as excise duty As per Sec. 11BB interest is payable by Revenue Moreover Sec.11BB is applicable to any refund sanctioned under Sec. 11B(2)

Summary

Issues:
1. Refund of unutilized credit on input duty.
2. Entitlement to interest on belated refund.
3. Interpretation of Section 11BB of the Central Excise Act.

Analysis:
1. The case involved two textile processing companies engaged in processing cotton and man-made fabrics under CETA, 1985, who claimed refund of unutilized credit on input duty under Rule 11 of Cenvat Credit Rules, 2001. The companies had filed refund claims for unutilized credit, which were sanctioned after a delay. Subsequently, they filed additional claims for interest on the belated refund, which were rejected by lower authorities. The CESTAT, Chennai allowed the interest claims, leading to appeals by the Department against this decision.

2. The primary question before the court was whether the CESTAT was correct in allowing interest on the refunded amount of input duty credit beyond the prescribed three-month period under Section 11BB of the Central Excise Act. The court examined the Modvat credit scheme, where duty paid on inputs could be taken as credit for duty payable on final products. The court concluded that Modvat credit is essentially excise duty available to the assessee for discharging duty obligations on final goods. Therefore, the respondent was entitled to interest for the belated refund of duty credit as per Section 11BB.

3. The court further noted that the refund in this case was ordered under Section 11B(2)(c) of the Act, which pertains to the refund of credit of duty paid on excisable goods used as inputs. It was clarified that the provisions of Section 11BB are automatically attracted for any refund sanctioned beyond three months. The court emphasized that Section 11BB applies to any duty ordered to be refunded under Section 11B(2), reinforcing the entitlement of the respondent to interest on the belated refund.

4. Considering the statutory provisions and the arguments presented, the court found no reason to interfere with the orders passed by the Tribunal. The appeals filed by the Department were dismissed, affirming the decision to allow interest on the belated refund of duty credit. The judgment upheld the entitlement of the respondent companies to interest for the delayed refund of unutilized credit on input duty, in accordance with the provisions of the Central Excise Act.