2020 (1) TMI 1654 - HC - Central Excise

Refund claim - payment of duty on Equalized Freight charges - period between 01.06.1972 and 15.03.1976 - principle of unjust enrichment - HELD THAT - As regards the liability to duty itself, the petitioner has admittedly remitted the duty in time, under protest, and succeeded in the claim as early as in 1989. Thereafter, it was at the instance of revenue that the matter travelled through the appellate hierarchy on the issue of whether the amendment to Section 11B of the stood attracted to the case of the petitioner or not. Section 11B was amended with effect from 20.09.1991. Post amendment, the Section provided for the test of unjust enrichment to be satisfied by the assessee. Thus, only where the Officer was of the view that the duty had not been collected from the person claiming refund or the instance of such duty had not been passed on by him could the refund be sanctioned. In Mafatlal 1996 (12) TMI 50 - SUPREME COURT , the provision was held to be constitutionally valid, operating only prospectively. Thus, the test of unjust enrichment was held to apply only to those applications for refund filed prior to the date of amendment that were yet pending. In the petitioners' case, the applications had been accepted by the CEGAT even prior to the date of amendment to Section 11B. The order is dated 06.06.1989, prior to amendment to Section 11B of the Act bringing into play the concept of unjust enrichment. With the appeal coming to be allowed, the refund became automatic, as a necessary incident of success in appeal. The subsequent litigation was on the question of whether there was unjust enrichment in the hands of the petitioner - the impugned order applying the provisions of Section 11BB to the facts and circumstances of this case, and granting statutory interest only for the period 26.08.1995 to 23.02.2004 does not take into account the facts and circumstances in proper perspective, either factually or legally. The entitlement of the petitioner, though termed interest , would really fall within the realm of compensation as it cannot be denied that the petitioner has been deprived of a substantial amount of capital from 1989 onwards till date and till date of payment - the petitioner in this case is clearly entitled to compensation for the loss of capital from the date of success in its appeal before the CEGAT, being 06.06.1989 as well as compensation on the delay on payment of interest as claimed. The petitioner is entitled to interest at the rate of 9% from 06.06.1989 till 25.08.1995 on the amount of refund and thereafter at the rates specified in Notifications of the Central Board of Excise and Customs in i) Notification No.41/2000-(N.T.), ii) Notification No.24/2001- Central Excise (N.T.) Dt.11/05/2001 (F.No.B-10/1/2001-TRU), iii) Notification No.17/2002- CE(N.T.) Dt.13/05/2002 (F.No.B-10/3/2002-TRU) and iv) Notification No.67/2003- CE (N.T.) Dt. 12/09/2003 (F.No.04/07/2003 CX.I) and interest at the rate of 6% till date of payment, to be paid over to it within a period of six (6) weeks from date of receipt of a copy of this order. Petition allowed.

Summary

Issues Involved:

1. Entitlement to refund of excise duty on 'Equalized Freight charges'.
2. Applicability of Section 11B of the Central Excise Act, 1991 amendment.
3. Entitlement to interest on delayed refund.
4. Whether compensation for loss of capital due to delayed refund is justified.

Detailed Analysis:

1. Entitlement to refund of excise duty on 'Equalized Freight charges':

The petitioner, a cement manufacturer, claimed a refund of excise duty paid on 'Equalized Freight charges' for the period between 01.06.1972 and 15.03.1976. The adjudicating authority initially rejected these claims, but the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) allowed the appeal on 06.06.1989, referencing the Supreme Court's decision in the Bombay Tyres International Case which established that equalized freight should not be included in the assessable value for excise duty purposes.

2. Applicability of Section 11B of the Central Excise Act, 1991 amendment:

The amendment to Section 11B of the Act, effective from 20.09.1991, introduced the principle of unjust enrichment. The petitioner’s refund claims, being finalized before this amendment, were argued to be outside its purview. The Supreme Court in Mafatlal Industries Ltd. clarified that the amended Section 11B would apply prospectively and not to cases where refund orders had already become final before the amendment.

3. Entitlement to interest on delayed refund:

The petitioner sought interest on the delayed refund from the date of refund claims in 1973 to the actual refund in 2004. The Department granted interest only for the period from 26.05.1995 to 23.02.2004. The petitioner argued for interest from the date of the original refund claims, citing significant case laws including Sandvik Asia Ltd. vs. Commissioner of Income Tax-I, Pune, which supported the payment of interest for inordinate delays.

4. Whether compensation for loss of capital due to delayed refund is justified:

The petitioner claimed compensation for the loss of capital due to the delay in refund. The court acknowledged the inordinate delay and held that the petitioner was entitled to compensation. The court referenced the Supreme Court's decision in Gujarat Fluoro Chemicals, which distinguished between statutory interest and compensation for inordinate delay. The court concluded that the petitioner was entitled to compensation for the loss of capital from the date of the CEGAT's favorable order on 06.06.1989.

Conclusion:

The court ordered that the petitioner is entitled to interest at 9% from 06.06.1989 to 25.08.1995 and thereafter at the rates specified in various Central Board of Excise and Customs notifications until the date of payment. The writ petition was allowed, directing the Department to pay the interest within six weeks from the receipt of the order.