2018 (2) TMI 1662 - AT - Central Excise

Entitlement to interest on interest - case of appellant is that the interest does not remain as interest but it is appropriated towards the outstanding dues. Therefore, the contention of the Department that interest amount ₹ 11,73,799/-, earlier allowed would not again attract interest, is unsustainable in law - whether the Appellant is entitled to interest on ₹ 11,73,799/- appropriated earlier against the confirmed demand? Held that - The Department even though refunded the said amount of ₹ 11,73,799/-, but declined to pay interest on the same holding that the said amount was earlier sanctioned/allowed to the Appellant as interest to the pre-deposit amount of ₹ 17,43,384/-, hence cannot be considered as principal amount and continues to be interest only - It cannot be denied that had the amount not appropriated, the Appellant would have received the interest amount of ₹ 11,73,799/- along with the principal amount of ₹ 17,43,384/- way back in 1995. Thus, on appropriation the interest is merged with the principle amount. In the result, the Appellant is entitled to interest on the amount of ₹ 11,73,799/-. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Entitlement to interest on the amount appropriated against confirmed demand.

Analysis:

Issue: Entitlement to interest on the amount appropriated against confirmed demand

The case involved an appeal against the Order-in-Appeal passed by the Commissioner of Central Excise, Customs & Service Tax. The Appellant had deposited an amount pursuant to a Supreme Court direction in an ongoing appellate proceeding in 1990. The appeal was decided in their favor in 1995, making the deposited amount refundable with interest. The Appellant became eligible for a refund, but it was adjusted against outstanding dues. Subsequently, after further litigation, the Tribunal decided in favor of the Appellant, making them eligible for a total refund. The Appellant then requested interest on the refund amount, which was partially allowed. The main issue was whether the Appellant was entitled to interest on the amount earlier appropriated against the confirmed demand.

The Appellant argued that the interest amount earlier allowed should attract interest as it was appropriated towards outstanding dues and should not be considered as interest anymore. The Revenue contended that the amount allowed as interest in 1995 should continue to be treated as interest, even if appropriated against dues.

The Tribunal held that the interest amount, when appropriated against the confirmed demand, became due to the Appellant. The Revenue's argument that the appropriated amount retained its character as interest was rejected. The Tribunal reasoned that had the amount not been appropriated, the Appellant would have received both the principal and interest amounts back in 1995. Therefore, on appropriation, the interest merged with the principal amount, entitling the Appellant to interest on the appropriated amount. Consequently, the impugned order was set aside, and the appeal was allowed in favor of the Appellant.

This judgment clarifies the principle that when an interest amount is appropriated against a confirmed demand, it merges with the principal amount, entitling the party to interest on the appropriated sum. It emphasizes the importance of considering the actual entitlement of the party to interest on amounts previously appropriated against dues.