2006 (4) TMI 157 - HC - Central Excise

Interest on delay in refund of Modvat credit - Writ jurisdiction - Held that - the provisions of Rule 57H and the notification issued thereunder enable refund under the Modvat credit scheme but even in such cases the procedure and limitation for claiming such refund would be governed by the provisions of Section 11B of the Central Excise Act - with effect from 26-8-1995 till the date of settlement of the claim i.e. 28-6-2002 petitioner was entitled to interest at the rate notified by the Central Govt. in accordance with the provisions of Section 11BB of the Central Excise Act - petition allowed.

Summary

Issues Involved:
1. Entitlement to interest on delayed refund of Modvat credit.
2. Applicability of Section 11BB of the Central Excise Act, 1944 for interest on Modvat credit.
3. Maintainability of a writ petition under Article 226 of the Constitution for claiming interest.

Issue-wise Detailed Analysis:

1. Entitlement to interest on delayed refund of Modvat credit:
The petitioner, a company engaged in manufacturing and exporting woven sacks, claimed interest on the delayed refund of Modvat credit amounting to Rs. 29,03,971/-. The petitioner argued that the benefits under the Modvat scheme were illegally denied, leading to a delayed settlement of the claim. The petitioner sought compensation for the delay in the form of interest, citing various judicial precedents and Section 11BB of the Central Excise Act.

2. Applicability of Section 11BB of the Central Excise Act, 1944 for interest on Modvat credit:
The petitioner contended that Section 11BB, which provides for interest on delayed refunds, should apply to their case. The respondents resisted this claim, arguing that Section 11BB does not apply to Modvat credit claims under Rule 57H. However, the court referred to the Gujarat High Court's decision in Indo-Nippon Chemicals Co. Ltd. v. Union of India, which held that the provisions of Section 11B and Section 11BB are applicable to Modvat credit claims. The Supreme Court upheld this decision. Consequently, the court ruled that the petitioner was entitled to interest from 26-8-1995 (the date Section 11BB came into force) to 28-6-2002 (the date of refund) at the rate notified by the Central Government.

3. Maintainability of a writ petition under Article 226 of the Constitution for claiming interest:
For the period from 2-7-1990 to 21-8-1995, the petitioner claimed interest based on general principles rather than any statutory provision. The court referred to its earlier decision in Kirloskar Brothers Ltd. v. Union of India, which held that a writ petition under Article 226 for interest on delayed refunds is not maintainable unless based on a statutory provision. The court distinguished this from the Rewa Gases Private Ltd. case, noting that the Supreme Court had stayed the judgment in Rewa Gases. The court concluded that the petitioner's claim for interest for the period before 26-8-1995 was not maintainable under Article 226, as it was not based on any statutory provision.

Conclusion:
The court allowed the petition in part. It rejected the claim for interest for the period from 2-7-1990 to 21-8-1995, ruling that a writ petition under Articles 226 and 227 is not maintainable for this period. However, it directed the respondents to pay interest for the period from 26-8-1995 to 28-6-2002, as per the rate notified under Section 11BB of the Central Excise Act. The petition was allowed to this extent without any order as to costs.