2016 (10) TMI 452 - HC - Central Excise

Rejection of refund claim partly - Rule 5 of CCR - non-payment of interest on the refund - Cocoa powder / Cocoa Butter - manufacture - labeling/repacking of Cocoa Butter and other products at Taloja Factory which amounting to manufacture in terms of Note 3 of Chapter 18 of the First Schedule to the Tariff Act read with Section 2 (f) of the Central Excise Act, 1944 - refund granted subsequently - whether for the purpose of calculation of interest the relevant date will be calculated the date the revised refund claims or the date of original refund claims? - Held that - the original refund applications were complete in all respects and the refund was rejected purely on its merits that the activity does not amount to manufacture. The rejection of refund was not on the ground that it was incomplete or that all the relevant documents were not submitted by the Petitioner. Once an application for refund has been made and the same is granted within a period of three months of receipt of such application, there would be no liability to pay interest. However, if the refund is granted after the expiry of the period of three months from the date of receipt of the application, then interest would also be payable on the amount of refund granted, from the date immediately after the expiry of three months from the date of receipt of such application, till the date of refund. The Petitioner would be entitled to interest on the sum of ₹ 44,46,42,651/- from the date immediately after expiry of three months from the date of receipt of the original refund applications till the date of receipt of the refund amount. The Petitioner entitled to a refund of ₹ 1,66,59,749/- being the remaining amount of the refund claim. The Petitioner directed to debit the Cenvat balance of ₹ 46,64,152/- from its Cenvat account - matter remanded for calculating and paying the interest as well as the refund of ₹ 1,66,59,749/- - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Validity and legality of the impugned order rejecting part of the refund claim and non-payment of interest on the refund already granted.
2. Entitlement of the Petitioner to interest under Section 11BB of the Central Excise Act, 1944 on the delayed refund.

Detailed Analysis:

1. Validity and Legality of the Impugned Order:
The Petitioner, engaged in the manufacture of Cocoa powder and Cocoa Butter, applied for a refund of unutilized CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004. The Assistant Commissioner of Central Excise (Respondent No.2) rejected part of the refund claim on the grounds that the activities undertaken did not amount to manufacture. This decision was overturned by the Appellate Tribunal, which ruled in favor of the Petitioner. Despite this, Respondent No.2 sanctioned only part of the refund and rejected ?1,61,12,607/- due to an erroneous calculation involving the value of scrap sale of corrugated boxes. Additionally, ?1,19,95,597/- was neither refunded nor allowed as re-credit. The Petitioner sought a mandamus directing the Respondent to sanction the refund and pay interest on the delayed refund.

2. Entitlement to Interest under Section 11BB:
The core issue was whether the Petitioner was entitled to interest on the delayed refund under Section 11BB of the Act. The Petitioner argued that the delay in granting the refund was contrary to Section 11BB, which mandates interest if the refund is not processed within three months from the date of receipt of the application. The Petitioner had filed the original refund applications between June 2013 and December 2014. These applications were initially rejected due to procedural grounds and the claim that the activities did not amount to manufacture. However, the Commissioner of Central Excise (Appeals) later set aside these rejections and ordered the refunds.

The Respondent contended that the interest-free period of three months should start from the date of receipt of a complete refund application, arguing that the Petitioner’s initial applications were not filed in the prescribed manner and were incomplete. Therefore, interest should be calculated from the date of the revised refund claims.

Judgment Analysis:
The Court analyzed the provisions of Sections 11B and 11BB of the Central Excise Act, 1944, and referred to the Supreme Court’s decision in Ranbaxy Laboratories Ltd. v/s Union of India, which clarified that interest under Section 11BB becomes payable if the refund is not processed within three months from the date of receipt of the application. The Court held that the original refund applications were complete in all respects and were rejected on merits, not due to incompleteness. Therefore, the Petitioner was entitled to interest from the date immediately after the expiry of three months from the date of receipt of the original refund applications.

Conclusion:
The Court ruled that the Petitioner is entitled to interest on the sum of ?44,46,42,651/- from the date immediately after the expiry of three months from the date of receipt of the original refund applications until the date of refund. Additionally, the Petitioner is entitled to a refund of ?1,66,59,749/- and must debit the Cenvat balance of ?46,64,152/- from its account. The matter was remanded back to Respondent No.2 for the limited purpose of calculating and paying the interest and the remaining refund within six weeks from the receipt of the order. The rule was made absolute with no order as to costs.