2024 (9) TMI 1356 - HC - Central Excise

Cash seizure - sale proceeds of clandestinely removed goods - pre-deposits made under section 35FF of the Central Excise Act - whether Respondents are justified in granting interest @6% per annum on the refund of cash seized although the said cash seized was deposited in fixed deposit and earned interest at more than 6% per annum? - HELD THAT - On a reading of Circular 984 of 2014, the contention raised by Respondents to justify interest @6% per annum is erroneous. The said Circular was issued in the light of amendments made to section 35F of the Central Excise Act and 129E of the Customs Act whereby these sections were substituted by section 35FF and section 129EE, respectively, providing for certain percentage of the demand to be paid as a condition precedent for entertaining the appeal. It is also important to note that in the present case cash was seized on 29th August 2011 and therefore appropriation of cash seized during investigation towards any pre-deposit as a condition for filing an appeal also cannot arise. Therefore, the contention raised by Respondents to justify the impugned O-I-O on this count is to be rejected. The Petitioner has not brought to our notice any provision to justify claim of interest @18% per annum and therefore such a claim cannot be granted to Petitioner. However, Petitioner s alternative submission on grant of interest at the actual rate which the fixed deposit has earned is certainly required to be considered. In the present case it is undisputed that at no point of time the cash seized was appropriated towards final tax dues and rightly so because the order discharging Petitioner of tax dues had attained finality. It is settled position that a trustee cannot enrich himself on behalf of the person for whom the money is held in trust. A trustee is supposed to account for each and every sum of money which is held in trust on behalf of the beneficiary. In the instant case, therefore, action of Respondents in granting interest @6% per annum when the fixed deposits arising out of cash seized from Petitioner have earned more than 6% per annum cannot be justified and Respondents are duty bound to handover the entire amount of interest which they have earned - Admittedly Petitioner cannot be faulted on account of this and Respondents have while granting interest, has granted interest for the period post the expiry of 10 years and Petitioner in his calculation has also reduced the same for arriving at the final claim. An inquiry should be initiated by Respondents to ascertain the accountability on this aspect and fix the responsibility by taking appropriate action against the persons found negligent for non-renewal of the fixed deposits. The impugned O-I-O dated 5th July 2024, Exhibit A to the petition is quashed and set aside - petitioner is not entitled to interest @18% per annum. However, is entitled to sum of Rs. 90,07,829/- being the interest in excess of 6% earned on fixed deposits arising out of cash seized from Petitioner - petition disposed off.

Issues Involved:
1. Justification for granting interest at 6% per annum on the refund of cash seized.
2. Applicability of Circular No. 984 dated 16th September 2014.
3. Entitlement to interest at 18% per annum or actual interest earned on fixed deposits.
4. Accountability for non-renewal of fixed deposits after the expiry of 10 years.

Detailed Analysis:

1. Justification for Granting Interest at 6% per Annum on the Refund of Cash Seized:
The petitioner sought to quash the Order-in-Original (O-I-O) dated 5th July 2024, which granted interest at 6% per annum on the refund of cash seized, arguing that they were entitled to interest at 18% per annum. The court noted that the cash seized was placed in a fixed deposit that earned more than 6% per annum. The respondents justified the 6% interest rate based on Circular No. 984 dated 16th September 2014. However, the court found this justification erroneous, as the circular pertains to pre-deposits made under section 35FF of the Central Excise Act and section 129EE of the Customs Act, not to cash seized during an investigation. The court held that the respondents' action of granting interest at 6% per annum while the fixed deposits earned more than 6% per annum amounted to unjust enrichment and misappropriation.

2. Applicability of Circular No. 984 dated 16th September 2014:
The court analyzed Circular No. 984 dated 16th September 2014, which prescribes a 6% interest rate for refunds of pre-deposits made under section 35FF of the Central Excise Act and section 129EE of the Customs Act. The court concluded that the circular did not apply to the petitioner's case, as the cash seized was not a pre-deposit for filing an appeal but was seized during an investigation. The respondents admitted in their affidavit that the case did not involve interest on delayed refunds of pre-deposits. Therefore, the court rejected the respondents' justification for the 6% interest rate based on the circular.

3. Entitlement to Interest at 18% per Annum or Actual Interest Earned on Fixed Deposits:
The petitioner did not provide any legal provision to justify the claim of interest at 18% per annum. However, the court considered the alternative submission that the petitioner was entitled to the actual interest earned on the fixed deposits. The court noted that the cash seized was placed in fixed deposits with Punjab & Sind Bank, earning interest ranging from 9.6% to over 6% per annum. The court held that the respondents, as trustees of the seized cash, were obligated to account for the entire interest earned on the fixed deposits and could not retain the excess interest. The court directed the respondents to refund the petitioner the actual interest earned on the fixed deposits.

4. Accountability for Non-Renewal of Fixed Deposits after the Expiry of 10 Years:
The court observed that there was no interest earned on the fixed deposits for the period from 4th January 2021 to 25th April 2024 due to auto-renewal inactivation after 10 years. The court questioned why the fixed deposits were not renewed post-expiry and whether Punjab & Sind Bank informed the respondents of this issue. The court directed the concerned Commissioner GST and CX to initiate an inquiry to ascertain accountability and take appropriate action against those responsible for the non-renewal of the fixed deposits.

Orders:
1. The impugned O-I-O dated 5th July 2024 was quashed and set aside.
2. The petitioner was not entitled to interest at 18% per annum but was entitled to Rs. 90,07,829/- as the interest in excess of 6% earned on the fixed deposits.
3. The respondents were directed to refund Rs. 90,07,829/- within four weeks, failing which interest at 6% per annum would apply.
4. The respondents were directed to foreclose the fixed deposit made on 14th August 2024 and return the amount along with interest within four weeks, failing which interest at 6% per annum would apply.
5. The concerned Commissioner GST and CX was directed to initiate an inquiry regarding the non-renewal of fixed deposits and take appropriate action against those responsible.

The court disposed of both writ petitions and made the rule absolute in the above terms.

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