2007 (2) TMI 234 - HC - Central Excise

Interest on delayed payment of refund - Writ jurisdiction - HELD THAT - We may mention here that there is no pleading in this behalf in the writ petition and only at the time of hearing the learned Counsel for the petitioner has advanced such a plea. We cannot permit such a plea for the first time of hearing of the writ petition when there is no factual foundation in the petition. Thus the writ petition succeeds and is allowed with costs which we assess at Rs. 1000/-. The respondent no. 2 is directed to pay interest at the applicable rates u/s 11BB of the Act on the sum of Rs. 7038272/- (the principal amount which has already been refunded to the petitioner) from 26th August 1995 till 14th November 2005 within 30 days from the date of filing of the certified copy of this order before the said respondent.

Issues Involved:
1. Entitlement to interest on delayed refund.
2. Applicability of Section 11BB of the Central Excise Act, 1944.
3. Justifiability of withholding refund on grounds of unjust enrichment.
4. Liability to pay interest on the amount of interest.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Delayed Refund:
The petitioner, M/s. U.P. Twiga Fiber Glass Limited, sought a writ of mandamus directing the respondent to pay interest on the delayed refund of Rs. 73,18,337/- from 26-8-95 at the rates applicable under the Central Excise Act, 1944. The petitioner argued that the refund claims were settled by 1992, but the amounts were refunded only on 14th November 2005, without interest. The petitioner claimed interest under Section 11BB of the Act due to the significant delay.

2. Applicability of Section 11BB of the Central Excise Act, 1944:
The respondents contended that the liability for interest under Section 11BB arises only after the dispute is finally settled. They argued that the refund claims were initially rejected on the grounds of unjust enrichment and were only settled by the Apex Court on 21st February 2005. Consequently, fresh refund claims were filed on 5th March 2005 and refunded on 14th November 2005. The petitioner, however, maintained that the disputes were settled by 1992, and the rejection of refunds on unjust enrichment grounds was erroneous, as later confirmed by the Apex Court.

3. Justifiability of Withholding Refund on Grounds of Unjust Enrichment:
The court noted that the disputes regarding classification and valuation of goods were settled by 1992, and the refunds were due then. The rejection of refunds on unjust enrichment grounds was invalidated by the Apex Court's decision on 21st February 2005. The court held that withholding refunds based on an erroneous view of unjust enrichment was unjustifiable. As per the Apex Court's ruling, unjust enrichment does not apply in cases of provisional assessment finalization.

4. Liability to Pay Interest on the Amount of Interest:
The petitioner argued for interest on the delayed refund, citing precedents such as Hamdard (Wakf) Laboratories v. Union of India and J.K. Cement Works v. Asstt. Commissioner of Central Excise and Customs. The court referenced these cases to establish that interest under Section 11BB is payable if the refund is not made within three months of the application. For applications made before Section 11BB's insertion, interest runs from three months post the Finance Bill, 1995's assent, i.e., from 26th August 1995.

The court also cited Sandvik Asia Ltd. v. Commissioner of Income Tax-I, Pune, emphasizing that erroneous legal views by the revenue do not justify withholding refunds. Thus, the respondents were liable for interest per Section 11BB from 26th August 1995 to 14th November 2005.

Conclusion:
The writ petition was allowed with costs, directing the respondent to pay interest at the applicable rates under Section 11BB of the Central Excise Act on the refunded amount from 26th August 1995 to 14th November 2005 within 30 days of filing the certified copy of the order.

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