On mere pendency of the proceedings before the Higher Authority, the Department cannot deny the refund and interest on delayed refund to the Assessee

[Bimal jain]

Dear Professional Colleague,

On mere pendency of the proceedings before the Higher Authority, the Department cannot deny the refund and interest on delayed refund to the Assessee

We are sharing with you an important judgment of Hon’ble High Court, Bombay, in the case of National Leather Cloth Mfg. Co. Vs. The Union of India and Others [2015 (1) TMI 944 - BOMBAY HIGH COURT ] on the following issue:

Issue:

Whether the Department can deny refund and interest on delayed refund to the Assessee, on mere pendency of the proceedings before the Higher Authority?

Facts and background:

National Leather Cloth Mfg. Co. (“the Petitioner”) was engaged in the manufacture of Excisable goods falling under Chapter 39, 56 and 59 of the First Schedule to the Central Excise Tariff Act, 1985. During the period January 1995 to March 1997, the Petitioner had utilized the Cenvat credit for Duty to be paid under the Additional Duties of Excise (Textile and Textile Articles) Act, 1978 of ₹ 41,01,467/- on Inputs.

The Department had taken a view that the Cenvat credit was wrongly utilized. The Petitioners deposited the above sum during the month of April and May 1997.

A Show Cause Notice was issued to the Petitioner which was adjudicated by the Commissioner of Central Excise, Mumbai and confirmed the demand of ₹ 41,01,467/- and imposed equal penalty.

Later, the Hon’ble Tribunal quashed and set aside the Order on March 12, 2004 on the ground of limitation and also set aside the penalty. Subsequently, the Petitioner filed refund application in terms of the order of the Hon’ble Tribunal but the same was rejected by the Deputy Commissioner of Central Excise on August 31, 2004. The matter again travelled to the Hon’ble Tribunal and on November 14, 2013, the Hon’ble Tribunal passed an Order and set aside the Commissioner (Appeals) Order dated May 26, 2005 and directed the authority to implement the Order of the Tribunal within 90 days of receipt.

Accordingly, refund was granted to the Petitioner of an amount ₹ 41,01,467/-, however, no interest was granted on refund amount.

The Petitioners approached to the ld. Commissioner (Appeals) who passed an Order dated August 12, 2014 and directed to pay the interest at the rate of 6% to the Petitioners from May 4, 2004 till the actual date of payment of refund of ₹ 41,01,467/-.

The Petitioner was aggrieved and dissatisfied with the fact that despite such Order, the interest amount has not been paid by the Department. Being aggrieved, the petitioner filed an appeal before the Hon’ble High Court of Bombay.

Held:

The Hon’ble High Court of Bombay noted that the Department had preferred an appeal to this Court against the Order of sanctioning of refund passed by the Hon’ble Tribunal dated November 14, 2013 and further the Department had preferred another appeal to the Hon’ble Tribunal against the order of ld. Commissioner (Appeals) passed on August 12, 2014 for payment of interest on refund.

Accordingly, the Hon’ble High Court held that the law provides that in the event, amount is not paid within a specified time, then, the Department will have to pay interest, unless and until, the Department had received any preventive or prohibitory order and direction. Mere pendency of the proceeding before the Tribunal and the Court in the given facts and circumstances, would not enable the Department to deny the claim of interest.

The Department cannot refuse to release the interest to the Petitioners.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks and Best Regards,

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

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