2017 (12) TMI 317 - AT - Central Excise

Demand on interest - whether the ld. Commissioner (Appeals) have rightly directed payment of interest on the amount deposited during investigation, which was lying with the Department and thereafter no SCN was issued? - Held that - the issue is squarely covered by the ruling of this Tribunal in the case of Toyoto Kirloskar Auto Parts Pvt. Ltd. 2008 (9) TMI 345 - CESTAT, Bangalore , where it was held that the appellant is entitled for interest on the amount, which has been withheld by the Department unlawfully from the date of deposit. The Adjudicating Authority is directed to grant interest from the date of deposit till the date of refund of the principal amount as per the rates in force at the relevant time - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether interest is payable on the amount deposited during investigation but later claimed as a refund?
2. Interpretation of Section 11B of the Central Excise Act, 1944 regarding refund procedure.
3. Applicability of CBEC Circular on refund interest timeline.
4. Comparison with cases of pre-deposit under Section 35F of the Central Excise Act, 1944.

Analysis:
1. The appeal raised the issue of whether interest should be paid on an amount deposited during investigation but later sought as a refund. The respondent-assessee, engaged in manufacturing, deposited a sum during an investigation period. The Department, unable to establish a case, initially denied the refund, citing non-compliance with Section 11B procedures for duty refund. However, the Commissioner (Appeals) ordered the refund with interest, which was initially denied by the Jurisdictional Authority based on a CBEC Circular. The Commissioner (Appeals) differentiated the case from pre-deposits under Section 35F, emphasizing the Department's failure to establish duty liability or issue a Show Cause Notice, holding the Department accountable for withholding the amount without reason for over 4 years.

2. The interpretation of Section 11B of the Central Excise Act, 1944 was crucial in determining the refund procedure. The Revenue argued invoking Section 11B for pre-deposits and questioned the interest payment timeline. Citing precedents like the ruling in Lakshmi Board & Paper Mills Ltd., the Revenue contended that interest should be paid after three months from the Refund Application receipt. However, the respondent's counsel relied on the Toyota Kirloskar Auto Parts Pvt. Ltd. case, where interest was granted from the date of deposit due to the Department's wrongful withholding of the amount.

3. The issue of the CBEC Circular's applicability on the interest refund timeline was raised. The Revenue referenced the Circular to support their argument against interest payment, as the refund was processed within three months of the Commissioner (Appeals) order. In contrast, the Commissioner (Appeals) and the respondent's counsel highlighted the Circular's inapplicability due to the unique circumstances of the case, distinct from pre-deposit scenarios.

4. The comparison with cases of pre-deposit under Section 35F of the Central Excise Act, 1944 was significant. The Tribunal's ruling in Toyota Kirloskar Auto Parts Pvt. Ltd. was cited, emphasizing the entitlement to interest on wrongfully withheld amounts from the date of deposit. The Madras High Court's decision in Commissioner of Central Excise, Chennai-II Versus Ucal Fuel Systems Ltd. further supported the argument for interest payment on deposits made during investigations, not towards excise duty, aligning with the respondent's stance.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding interest payment from the deposit date to the refund date. The Adjudicating Authority was directed to comply with the interest payment and report back within 60 days, granting the respondent liberty to ensure timely action.