2024 (11) TMI 469 - HC - Central Excise

Recovery of amount paid by the petitioner to the Department as interest in excess of actual interest liability - validity of Rule 8 (3) of the Central Excise Rules, 2002 which is declared ultra vires - HELD THAT - An amount received on the basis of provisions of law, which has been declared ultra vires has to be treated as in contravention of provision of Article 265 of the Constitution of India and the same has to be refunded. The Supreme Court in Mafatlal s case 1996 (12) TMI 50 - SUPREME COURT has held that a person is entitled to receive the amount once the Court holds a person entitled to it and as a corollary the Department would not be entitled to keep the same with them. Therefore, even if an application is not moved, the department would be obliged to refund the amount to concerned person from whom the excess amount has been received unlawfully after the provision has been declared ultra vires. This Court holds that the amount kept by the respondents as excess amount of Rs. 3,66,649/- was unjustified and the Department ought to have refunded it back. The application for refund moved by the petitioner has wrongly been treated as an application under Section 11B of the Act and should have been treated as a simple application for refund in terms of the provisions having been declared ultra vires, if the amount therefore has to be returned to the petitioner. The respondents are directed to refund the amount alongwith interest @ 6% per annum from the date the same was deposited erroneously - appeal disposed off.

Summary

Issues:
Recovery of excess interest paid to the Department, validity of Rule 8 of the Central Excise Rules, 2002, applicability of Section 11B of the Central Excise Act, 1944, maintainability of writ petition for refund, obligation of the Department to refund unlawfully received amount, entitlement to interest on refunded amount.

Analysis:
The petitioner, engaged in manufacturing, sought to recover Rs. 3,66,649 paid as excess interest to the Department due to delayed excise duty payment. The petitioner relied on a Rajasthan High Court judgment declaring Rule 8(3) ultra vires to Section 11AB, limiting interest to 2% per month. Despite rejection based on Section 11B's time bar, subsequent appeals favored the petitioner. The petitioner argued the refund based on Supreme Court precedent in 'Mafatlal Industries Ltd. vs. Union of India', emphasizing the ultra vires declaration of Rule 8(3).

The respondents contended that the CESTAT's decision was final, negating the refund obligation. They argued that the petitioner, having availed Section 11B remedy, couldn't seek relief under Article 226. Citing Mafatlal's case, the revenue asserted that the petitioner's claim wasn't maintainable under Rule 11/Section 11B due to the constitutional challenge absence.

The Court analyzed Mafatlal's case, emphasizing the right to refund under Article 265 upon a law's unconstitutionality declaration. Rejecting the revenue's stance, the Court noted that an ultra vires provision's existence voids actions based on it, necessitating refunds. It held that unlawfully received amounts must be refunded, even without an application, as per Mafatlal's principles.

The Court ruled the Department unjustified in withholding Rs. 3,66,649 and directed its refund with 6% annual interest from the erroneous deposit date. It allowed the writ petition, emphasizing the State's obligation to refund under Mafatlal's precedent. All pending applications were disposed of accordingly.