2024 (12) TMI 1448 - AT - Central Excise

Interest on delayed refunds - to be calculated from the date of deposit or from the date of filing the refund application - applicable rate of interest on the delayed refund - HELD THAT - In the present case impugned order clearly observes that the amount that was deposited by the appellant at the time of visit of officers to their premises was appropriated by the original authority while adjudicating the case of shortages against the appellant. The amount so appropriated acquired the character of duty, the moment it is appropriated against the demand made. In case of MAFATLAL INDUSTRIES LTD. VERSUS UNION OF INDIA 1996 (12) TMI 50 - SUPREME COURT , Hon ble Supreme Court has observed 'Section 11B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act are constitutionally valid and have to be followed and given effect to. Section 72 of the Contract Act has no application to such a claim of refund and cannot form a basis for maintaining a suit or a writ petition. All refund claims except those mentioned under Proposition (ii) below have to be and must be filed and adjudicated under the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be. It is necessary to emphasise in this behalf that Act provides a complete mechanism for correcting any errors whether of fact or law and that not only an appeal is provided to a Tribunal - which is not a departmental organ - but to this Court, which is a civil court.' Thus all the refunds which are filed under the Central Excise Act, 1944 in terms of the decision of hon ble Supreme Court in case of Mafatalal Industries and the above provisions whether of the duty, interest or any deposit made are governed by the provision of Section 11B of the Act. The interest thus gets governed by the provisions of Section 11BB as has been held by Hon ble Supreme Court in case of Ranbaxy, referred in the impugned order. There has been exception carved out only for determination of relevant date for determining the period for which interest is to be paid in respect of deposit made as per Section 35F for filing the appeal before an appellate authority. Section 35FF provides that interest would be paid from the date of deposit made under Section 35F. Conclusion - Interest would be paid from the date of deposit made. There are no merits in the appeal - appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment are:

• Whether the appellant is entitled to interest on the refund from the date of deposit or from the date of filing the refund application.
• Whether the amount deposited by the appellant during the investigation should be treated as a deposit or as a duty.
• What is the applicable rate of interest on the delayed refund, if any?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to Interest on Refund

• Relevant Legal Framework and Precedents: The judgment references Section 11B and Section 11BB of the Central Excise Act, 1944, which govern the refund of duty and interest on delayed refunds. The court also considers the precedent set by the Supreme Court in the case of Ranbaxy Laboratories Ltd., which held that interest on refunds is payable from three months after the filing of the refund application.
• Court's Interpretation and Reasoning: The court interprets that the interest on the refund is payable from the expiry of three months from the date of filing the refund application, not from the date of deposit. This is consistent with the statutory provisions and the precedent set by the Supreme Court.
• Key Evidence and Findings: The appellant filed a refund claim on June 5, 2018, and the refund was sanctioned on September 7, 2018, beyond the three-month period, entitling the appellant to interest from September 4, 2018.
• Application of Law to Facts: The court applies Section 11BB to determine the start date for interest calculation as three months post the refund application date.
• Treatment of Competing Arguments: The appellant argued for interest from the date of deposit, citing other tribunal decisions, but the court found these not applicable due to the specific legal framework governing excise duty refunds.
• Conclusions: The court concludes that the appellant is entitled to interest from September 4, 2018, not from the date of deposit.

Issue 2: Nature of the Amount Deposited

• Relevant Legal Framework and Precedents: The court examines how amounts deposited during investigations are treated under the Central Excise Act, referencing the decision in Mafatlal Industries, which discusses the nature of duty and deposits.
• Court's Interpretation and Reasoning: The court reasons that once an amount is appropriated against a demand, it assumes the character of duty, subject to the provisions of Section 11B for refunds.
• Key Evidence and Findings: The amount deposited by the appellant was appropriated as duty during the adjudication process.
• Application of Law to Facts: The court applies the principle that appropriated amounts are treated as duty, thus subject to the refund provisions under Section 11B.
• Treatment of Competing Arguments: The appellant's argument that the deposit should not be treated as duty was not upheld, as the appropriation process had already occurred.
• Conclusions: The court concludes that the amount is to be treated as duty, and the refund process is governed by Section 11B.

Issue 3: Applicable Rate of Interest

• Relevant Legal Framework and Precedents: The court considers various precedents and statutory provisions, including Section 11BB, which prescribes interest rates for delayed refunds.
• Court's Interpretation and Reasoning: The court finds that the statutory rate of interest applies, rejecting claims for higher interest rates based on other tribunal decisions.
• Key Evidence and Findings: The court references the statutory framework and previous decisions that align with the prescribed interest rates.
• Application of Law to Facts: The court applies the statutory rate of interest as per Section 11BB.
• Treatment of Competing Arguments: The appellant's claim for a higher interest rate was dismissed, as it was not supported by the statutory provisions.
• Conclusions: The court concludes that the interest rate as prescribed by Section 11BB is applicable.

3. SIGNIFICANT HOLDINGS

• The court held that interest on refunds is payable from the expiry of three months from the date of filing the refund application, not from the date of deposit. "Interest under Section 11BB of the Act becomes payable, if on an expiry of a period of three months from the date of receipt of the application for refund, the amount claimed is still not refunded."
• The court established that amounts appropriated against a demand acquire the character of duty and are subject to the refund provisions under Section 11B.
• The court determined that the statutory rate of interest under Section 11BB applies to delayed refunds, rejecting claims for higher interest rates.
• The appeal was rejected, affirming the lower authority's decision on the entitlement and calculation of interest on the refund.