2005 (7) TMI 138 - AT - Central Excise

Summary

Issues:
Claim for interest on amounts refunded under Rule 5 of the Cenvat Credit Rules, 2001/2002.

Analysis:
The appellants filed claims for refund of outstanding input duty credits under Rule 5 of the Cenvat Credit Rules, 2001/2002, which were sanctioned belatedly. The issue was whether interest was admissible on these refunded amounts received beyond the prescribed three-month period under Section 11BB of the Central Excise Act. The original and appellate authorities rejected the interest claims, stating that no interest was payable on Modvat credit refunded under Rule 5. The question was whether Section 11BB applied to claims of interest on belatedly refunded Modvat credit amounts.

The appellants relied on circulars and court decisions supporting their claim for interest. They argued that Section 11BB should apply to such refunds beyond the prescribed period. The department contended that Rule 5 and related notifications did not provide for interest on refunded input duty credit and that Section 11B was the only applicable provision for limitation. The Tribunal considered the legal provisions and precedents cited by both sides to determine the applicability of Section 11BB to the interest claims on refunded Modvat credit amounts.

The Tribunal found that Rule 5 only prescribed the procedure for filing and processing refund claims, while Section 11BB covered the payment of interest for delays in refunds beyond three months. The refunds in question were ordered under Section 11B, and the Board's circular clarified the automatic application of Section 11BB for any refund sanctioned beyond three months. The Tribunal held that the decision denying interest in a previous case was incorrect as it did not consider the relevant legal provisions and circulars. The correct legal position was that interest was payable on refunded input duty credit amounts beyond the prescribed period under Section 11BB.

The Tribunal emphasized that the refunded amounts were input duty credits that would have been used for duty payment on final products if not exported. The department's argument against interest on refunded duty credit was deemed illogical, especially after a specific Board circular clarified the nature of such refunds. Consequently, the Tribunal set aside the previous orders and allowed the appeals, holding the department liable to pay interest on the refunded input duty credit amounts for the delay beyond the prescribed period under Section 11BB.