2019 (11) TMI 10 - AT - Central Excise

Interest on delayed refunds - Whether the appellant is entitled to interest on the sanctioned amount of interest qua refund claims which could not be disbursed with three months thereof? - Section 11BB of Central Excise Act, 1944. HELD THAT - The first argument of the appellants that they are entitled for interest on interest being compensatory in nature is not sustainable. Since, it technically is interest on interest it cannot be called as compensation suo moto, nor has been so prayed by the appellant himself - the question is answered in favor of Revenue. Now coming to the alternate argument of the Appellant that from the amount of refund sanctioned since there is an interest liability, the amount should be first adjusted towards the interest liability. It is observed that this rule of first appropriating the interest is applicable only to the debts or to the decreetal amount. The case law as relied upon by the appellant is also either qua debts or qua the decreetal amount. Hence, the same is not applicable to the present case of refund of indirect taxes. The said rule of interpretation is otherwise contained in order-21 Rule-1 of Civil Procedure Code relating to execution of decrees for recovery of money. Such a provision stands absolutely excluded from the Central Excise Act, 1944. Appeal dismissed.

Issues Involved:
1. Entitlement to interest on delayed sanction of refund.
2. Applicability of the doctrine of unjust enrichment.
3. Entitlement to interest on interest for delayed refund.
4. Appropriation of refund amount towards interest liability first.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Delayed Sanction of Refund:
The appellant filed a refund claim on 21.02.2012 for interest paid under protest on reversal of ineligible Cenvat Credit. The refund claim was initially rejected by the Deputy Commissioner and subsequently by the Commissioner (Appeals). The CESTAT, New Delhi, in its order dated 22.03.2016, allowed the appeal, granting the refund along with consequential interest. However, the Assistant Commissioner ordered the refund amount to be credited to the Consumer Welfare Fund, which was later overturned by the Commissioner (Appeals), holding that the doctrine of unjust enrichment was not applicable for the amount of interest. The appellant then sought interest on the delayed refund, which was denied by the Assistant Commissioner and upheld by the Commissioner (Appeals), leading to the present appeal.

2. Applicability of the Doctrine of Unjust Enrichment:
The Commissioner (Appeals) ruled that the doctrine of unjust enrichment does not apply to the amount of interest. This decision was based on the premise that interest is compensatory in nature and is intended to compensate the appellant for the delay in refunding the amount due.

3. Entitlement to Interest on Interest for Delayed Refund:
The appellant argued that the delay in refunding the interest entitled them to additional interest on the delayed interest amount, relying on the Supreme Court's decision in Sandvik Asia Ltd. Vs. CIT. However, the Tribunal noted that the Supreme Court in the case of Gujarat Fluoro Chemicals clarified that only statutory interest can be claimed, and no additional interest on such statutory interest is permissible. The Tribunal observed that while compensation for inordinate delay might be warranted, it does not have the power to grant such compensation, as it is a quasi-judicial authority bound by statutory provisions.

4. Appropriation of Refund Amount Towards Interest Liability First:
The appellant contended that the refund amount should first be appropriated towards the interest liability, and any shortfall in the principal amount should attract interest. The Tribunal rejected this argument, stating that the rule of first appropriating interest applies to debts or decreetal amounts and not to the refund of indirect taxes. The Tribunal cited Order-21 Rule-1 of the Civil Procedure Code, which is not applicable to the Central Excise Act, 1944. The Tribunal also referenced the Supreme Court's clarification in V. Kala Bharathi's case, which supports the view that interest should be calculated only on the unpaid principal amount.

Conclusion:
The Tribunal upheld the order under challenge, dismissing the appeal. It concluded that the appellant is not entitled to interest on interest and that the refund amount should not be appropriated towards the interest liability first. The Tribunal emphasized that it does not have the power to grant compensation for delayed refunds beyond the statutory interest provided.

← Previous Next →