2008 (9) TMI 12 - SC - Central Excise

Interest on delayed refund - High Court directed grant of interest from first day on which the revenue rejected the refund, irrespective of the date when Section 11 BB was inserted but the refund is allowable on or after the date of insertion of section 11BB - order of HC is modified and the revenue s appeal is allowed

Summary

Issues:
Challenge to High Court's judgment directing grant of interest for delayed refund under Central Excise Act, 1944 and Rules.

Analysis:
The case involved a challenge to a Division Bench of the Gujarat High Court's judgment directing the grant of interest to the respondent for an alleged delayed refund under the Central Excise Act, 1944, and Central Excise Rules, 1944. The respondent initially claimed a refund before the Assistant Commissioner, which was rejected. Subsequent appeals led to the Customs Excise and Gold Control Appellate Tribunal West Regional Bench allowing the appeal and ordering the refund to be paid without delay. The respondent then sought interest on the refunded amount, which was granted by the High Court based on Section 11 BB of the Act. The appellant argued that the High Court overlooked the provisions of Section 11BB, which clarified that interest becomes payable only after three months from the date of the application. The appellant contended that the respondent's claim should not have been accepted as it did not align with Section 11BB. The respondent, on the other hand, argued that equitable interest should also be payable and referred to relevant sections of the Act. The Court cited previous judgments to discuss the position on statutory interest, emphasizing that interest is payable only as provided by the statute and not as a matter of equity. It was noted that in cases of equitable interest, a written demand is essential.

The Court referred to the case law to highlight that interest can be awarded based on agreements, statutory provisions, trade usage, or equitable considerations. It was emphasized that interest cannot be awarded as damages unless money due is wrongfully withheld and there are equitable grounds, necessitating a written demand. In the absence of any agreement, statutory provision, or mercantile usage, interest payable should be at the market rate, justified by equitable circumstances. The Court noted that in the present case, no written demand for interest on equitable grounds was made. As per Section 11BB(1), the respondent was entitled to interest for a specific period, and the quantum was to be calculated and paid within four weeks. Consequently, the High Court's order was modified, and the appeal was allowed to the extent mentioned, with no costs incurred.