2019 (6) TMI 205 - AT - Service Tax

Interest on delayed refund - Section 11 BB of CEA - HELD THAT - Supreme Court in the case of RANBAXY LABORATORIES LTD. VERSUS UNION OF INDIA AND ORS. 2011 (10) TMI 16 - SUPREME COURT held that Even where the refund is granted by the appellate authority, interest under Section 11 BB shall be payable with effect from the expiry of three months from the date of original application. Accordingly, this ground is allowed in favour of the appellant. The adjudicating Authority is directed to pay interest w.e.f. three months from the date of expiry of the date of original refund application, being 29.01.2007 - Interest allowed. Suo moto adjustment made out of sanctioned refund - HELD THAT - The adjudicated dues have not been stayed by the appellate court before which the appeal is pending. Further, the Adjudicating Authority is empowered under Section 11 of the Act read with Section 142 of the Customs Act, to make adjustment of the outstanding adjudicated dues, out of any refund payable to an assessee, where such adjudicated dues have not been stayed by the appellate court - However, it is desirable on the part of the adjudicating authority granting refund, to give an opportunity of hearing, before making such adjustment. Appeal allowed in part and part matter on remand.

Summary

Issues:
1. Entitlement to interest under Section 11 BB.
2. Justification of suo moto adjustment of adjudicated dues by the adjudicating authority.

Analysis:

Issue 1: Entitlement to interest under Section 11 BB
The primary issue in this appeal was whether the appellant is entitled to interest under Section 11 BB. The appellant had filed a refund application on 29.01.2007, seeking interest on the refund amount. The counsel argued that Section 11 BB provides for the grant of interest at the notified rate when a refund is not granted within three months from the date of application. The interest on refund is calculated from the date immediately after the expiry of three months from the application date until the actual refund date. The Explanation to Section 11 BB clarifies that interest is payable from the expiry of three months from the original application date. The Hon'ble Supreme Court's interpretation in the case of Ranbaxy Laboratories Ltd. emphasized that interest becomes payable after three months from the application date, irrespective of when the refund order is made. Consequently, the Tribunal ruled in favor of the appellant, directing the adjudicating authority to pay interest from three months after the original refund application date.

Issue 2: Suo Moto Adjustment of Adjudicated Dues
The second issue revolved around the justification of the adjudicating authority's suo moto adjustment of adjudicated dues against the sanctioned refund amount. The appellant's appeal against the adjustment was based on the non-stay of adjudicated dues by the appellate court. The Tribunal noted that the Adjudicating Authority is empowered under Section 11 of the Act, read with Section 142 of the Customs Act, to adjust outstanding adjudicated dues from any refund payable to an assessee if these dues have not been stayed by the appellate court. Consequently, the Tribunal rejected the appellant's appeal on this ground. However, it emphasized the importance of providing the assessee with an opportunity for a hearing before making such adjustments. The appeal was allowed in part, with the direction for interest payment as discussed earlier.

In conclusion, the Tribunal's judgment clarified the entitlement to interest under Section 11 BB and the authority's power to adjust adjudicated dues against refund amounts, highlighting the need for procedural fairness in such adjustments.