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TMI Blog2023 (7) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... apposite to observe that the mere pendency of an appeal or an order of stay that may operate thereon would not detract from the obligation of any person claiming a refund making an application as contemplated under Section 11B(1) within the period prescribed and computed with reference to the relevant date - it is observed in light of the indubitable principle that an order of stay that may operate in an appeal does not efface the demand or the obligation of refund that may have sprung into existence. It merely places the enforcement of the order appealed against in abeyance. The order of stay would, in any case, be deemed to have never existed once the appeal comes to be dismissed. The subject of interest on delayed refund which is governed by Section 11BB itself prescribes the starting point for payment of interest on delayed refunds to be the date when an application under Section 11B(1) is received. On a conjoint reading of Sections 11B and 11BB of the 1944 Act, therefore, the irresistible conclusion arrived at that interest on delayed refund is clearly dependent upon the making of a formal application as stipulated by Section 11B of the 1944 Act. The distinction between Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts proprietor, one M/S Aay Kay Engineering Works and its proprietor, in respect of certain goods which had been seized. The aforesaid SCN was followed by another SCN dated 29 January 2007 in terms of which the Department raised a demand for additional duty as well as proposing penal action again against the noticees for having violated the provisions of an exemption notification. The petitioner asserts that during the pendency of those proceedings, it was also forced to deposit an amount of Rs. 20,00,000. The SCNs were ultimately finalized in terms of the order in original dated 08 February 2008. 4. In terms of the aforesaid order, the Additional Commissioner confirmed the duty demand of Rs. 45,31,574 /- under Section 11A of the 1944 Act and held the petitioners liable to pay the same along with interest thereon in accordance with Section 11AB of the 1944 Act. Further directions were framed for confiscation of cash amounting to Rs. 44,96,000/- and the imposition of monetary penalties amounting to Rs. 45,31,574/-. The amount of Rs. 20,00,000/- which had been deposited by the petitioners during the pendency of the SCN proceedings was also appropriated against the demands which stood ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts that had been collected from the petitioner during the course of investigation and the proceedings which were initiated. It was his submission that the obligation of the respondents to effect that refund could not be hinged or made dependent upon an application being made by the petitioner and since such action was merely consequential, it should have been initiated by the respondents of their own volition. Mr. Mishra submitted that the retention of refund by the respondents despite the orders passed in appeal clearly amounts to unjust enrichment and the Court consequently must hold the respondent liable to pay interest for the period by which the actual refund was delayed. 10. Mr. Mishra submitted that the liability of the respondents to pay interest on a delayed refund is a question which is no longer res integra and stands settled in light of the judgment rendered by a Division Bench of the Gujarat High Court in Shri Jagdamba Polymers Limited vs. Union of India & Ors. 2012 SCC OnLine Guj 4772. Reliance was placed on the following principles as they came to be laid down by the High Court in that decision: - "4. In the meantime, since the adjudicating authority had alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since such order of the Commissioner (Appeals) was challenged before the Tribunal. Thirdly, the Commissioner (Appeals) disposed of the petitioners' case on 11-10-2002 with respect to the refund and not with respect to the original claim of classification. Fourthly, the application filed by the petitioners on 10-1-2003 was a fresh application for refund and cannot be treated as the original application when the refund applications were already filed at the relevant time. Fifthly, the Tribunal in case of Bharat Heavy Electricals Ltd. did not hold that the interest would be available only after three months of the date of the appellate order. In the said case, the question involved was of refund of pre-deposit. The assessee when in appeal was required to make pre-deposit of the duty demand. When the appeal was disposed of, refund was found payable out of such pre-deposit amount. It was in this background, the Tribunal observed that entitlement for refund would arise only when the appeal was finally disposed of in favour of the appellant by the Tribunal and that being so, no interest can be claimed for the period prior to the date of final order. In this case, it was thus clearly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,099/- and, therefore, there is no justification for denying the petitioners interest for the delay in payment of the said amount of Rs. 5,21,099/- for the period from the date of expiry of three months from 31.10.1995 when the petitioners had made the application for refund of the entire amount of Rs. 20,72,023/- out of which Rs. 14,83,303/- was directed to be refunded by the Deputy Commissioner's order dated 6.6.2000 and the balance amount of Rs. 5,21,099/- was ordered to be refunded by the Appellate Commissioner's order dated 26.2.2001." As pointed out by the learned counsel for the petitioners, in case of Ranbaxy Laboratories Ltd. v. Union of India reported in 2011 (273) E.L.T. 3 (S.C.), the Apex Court in context of section 11BB of the Central Excise Act held that interest on delayed interest is payable under said application on expiry of a period of three months from the date of receipt of application for refund and not from the date of order of refund or appellate order allowing such refund. 18. As already noted, the petitioners were made to engage in continuous litigation for years together before initially their refund claims were sanctioned even after the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise of powers under section 37B of the Act. 22. In sum and substance, in the facts of the present case, the Department cannot avoid the liability of accounting for interest on the delayed payment of interest to the extent the same was paid late. Since such claim does not fall within the statutory provisions contained in section 11BB of the Act, in exercise of writ jurisdiction, we would not direct payment of such interest at the statutory rate but would provide for reasonable interest looking to the present trend. Under the circumstances, the petition is allowed. The respondents shall pay simple interest at the rate of 9% per annum on the sum of Rs. 1,06,12,678/- for the period between 1-42003 to 23-9-2004 which shall be done within a period of eight weeks from the date of receipt of a copy of this order. The petition is disposed of accordingly. Rule made absolute. No costs" 11. Mr. Mishra also placed reliance upon the decision rendered by the Allahabad High Court in EBiz.Com Private Limited vs. Commissioner of Central Excise, Customs & S.T. 2016 SCC OnLine All 4133 where again while dealing with the question of the liability of the State to pay interest in case of a delay ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Rs. 4, 66, 39, 061/-, refusing to refund what has already been received and to which they have not been held to be entitled. xxx xxx xxx 12. The respondents are reminded of Article 265 of the Constitution of India prohibiting any tax to be levied or collected except by authority of law. The respondents have also not pleaded a case of the petitioner being not entitled to refund, on the ground of the petitioner having passed of the liability to another as illustrated in the Nine Judge Bench's judgment of the Supreme Court in Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 = (1997) 89 ELT 247 ( S.C. ). Allowing the respondents to retain the said amount, would also be in violation of Section 72 of the Contract Act, 1872, obliging a person to whom money has been paid by mistake or under coercion, repay the same. The said provision enshrines the principle of unjust enrichment and restitution and the respondents State, by refusing to refund the sum of Rs. 2, 38, 00, 000/-, are purporting to unduly enrich themselves. 13. We may however mention that the Counsel for the petitioner also, perhaps to bring the case of the petitioner within the Circular relied upon, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st time sought refund of the said amount vide letter dated 2nd May, 2018. 21. Considering the said facts, we do not find the petitioner entitled to interest at any higher rate than @ 6% per annum from the date of deposit i. e. 27th October, 2006 till the end of May, 2018 i.e. 31st May, 2018. However, we do not find any justification for the respondents retaining the said amount thereafter and find the respondents liable for interest with effect from 1st June, 2018 onwards and till date @ 7.5% per annum. While so enhancing the rate of interest, we have also taken into consideration the noncompliance by the respondents of the orders of this Court as detailed above, leading to a contempt notice being issued to the respondents and in response whereto Ms. Niharika Gupta, Assistant Commissioner in the Office of Division- Nehru Place, Central GST, Delhi East Commissionerate is present in the Court." 13. In addition to the above, Mr. Mishra also drew our attention to the Circular F.No. 275/37/2K-CX, 8A dated 02 January 2002 issued by the Central Board of Excise and Customs [Board] where while dealing with the refund of pre-deposit made in terms of Section 35F of the 1944, the Board had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the Challan in Form TR6 evidencing the payment of the amount of such deposit, addressed to the concerned Assistant/Deputy Commissioner of Central Excise or Customs, as the case may be, will suffice for the purpose. All pending refund applications already made under the relevant provisions of the Indirect Tax Enactments for return of such deposits and which are pending with the authorities will also be treated as simple letters asking for return of the deposits, and will be processed as such. Similarly, bank guarantees executed in lieu of cash deposits shall also be returned. 4. The above instructions may be brought to the notice of the field formations with a request to comply with the directions and settle all the claims without any further delay. Any deviation and resultant liability to interest on delayed refunds shall be viewed strictly. 5. All the trade associations may be requested to bring the contents of this circular to the knowledge of their members and the trade in general. 6. Kindly acknowledge receipt. (Lakhinder Singh) Joint Secretary to the Government of India" 14. In view of the aforesaid, learned counsel would submit that since the Department is i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only if the date of 01 March 2017 be recognised to fall beyond the three month window as contemplated under Section 11BB when computed from 14 November 2016. The submission in essence was that the liability to pay interest on a refund would arise only if the same be effected three months after the making of an application for the same by the assessee. 18. Ms. Narain submitted that the issue of interest which is liable to be paid under Section 11B was authoritatively ruled upon by the Supreme Court in Ranbaxy Laboratories Limited vs. Union of India and Ors. (2011) 10 SCC 292 where the following principles came to be enunciated: - "12. It is manifest from the afore-extracted provisions that Section 11-BB of the Act comes into play only after an order for refund has been made under Section 11-B of the Act. Section 11-BB of the Act lays down that in case any duty paid is found refundable and if the duty is not refunded within a period of three months from the date of receipt of the application to be submitted under sub-section (1) of Section 11-B of the Act, then the applicant shall be paid interest at such rate, as may be fixed by the Central Government, on expiry of a period of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. Union of India, (2011) 10 SCC 292] In the said case, the question arose whether the liability of the Revenue to pay interest under Section 11-BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund or on the expiry of the said period from the date on which the order of refund is made. The two-Judge Bench after analysing the provision has held as follows: (SCC pp. 296-97, paras 12-13) "12. It is manifest from the afore-extracted provisions that Section 11-BB of the Act comes into play only after an order for refund has been made under Section 11-B of the Act. Section 11-BB of the Act lays down that in case any duty paid is found refundable and if the duty is not refunded within a period of three months from the date of receipt of the application to be submitted under sub-section (1) of Section 11-B of the Act, then the applicant shall be paid interest at such rate, as may be fixed by the Central Government, on expiry of a period of three months from the date of receipt of the application. The Explanation appearing below the proviso to Section 11-BB introduces a deeming fiction that where the order for refund of duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 11-BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund under Section 11B(1) of the Act and not on the expiry of the said period from the date on which the order of refund is made." 22. We will be failing in our duty if we do not refer to the larger Bench decision rendered in Mafatlal Industries Ltd. v. Union of India [Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536] which has been emphatically relied upon by Mr Adhyaru, learned Senior Counsel for the Revenue. He has drawn our attention to paras 83 and 91. Relying on the said paragraphs, it is contended by Mr Adhyaru that the onus is on the assessee to satisfy the competent authority that he has not passed on the burden of duty to others, for the claim of refund is founded on the said bedrock. The Bench dealing with this facet has expressed thus: (SCC p. 615, para 83) "83. … Where the plaintiff-petitioner alleges and establishes that he has not passed on the burden of the duty to others, his claim for refund may not be reused. In other words, if he is not able to allege and establish that he has not passed on the burden to others, his claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refund in case of success. Secondly, in a competitive market economy, as the one we have embarked upon since 1991-1992, the manufacturer's self interest lies in producing more and selling it at competitive prices -- the urge to grow. A favourable decision does not merely mean refund; it has a beneficial effect for the subsequent period as well. It is incorrect to suggest that the disputes regarding classification, valuation and claims for exemptions are fought only for refund; it is for more substantial reasons, though the prospect of refund is certainly an added attraction. It may, therefore, be not entirely right to say that the prospect of not getting the refund would dissuade the manufacturers from agitating the questions of exigibility, classification, approval of price lists or the benefit of exemption notifications. The disincentive, if any, would not be significant. In this context, it would be relevant to point out that the position was no different under Rule 11, or for that matter Section 11-B, prior to its amendment in 1991. Sub-rules (3) and (4) of Rule 11 (as it obtained between 6-8-1977 and 17-11-1980) read together indicate that even a claim for refund arising a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for refund. The adjudicatory process by no stretch of imagination can be carried on beyond three months. It is required to be concluded within three months. The decision in Ranbaxy Laboratories Ltd. [Ranbaxy Laboratories Ltd. v. Union of India, (2011) 10 SCC 292] commends us and we respectfully concur with the same." 20. Ms. Narain further submitted that the requirement of a formal application being made and as put in place in terms of Section 11B serves an important and salutary purpose. According to learned counsel, while making that application the person who claims refund must also declare that the incidence of duty or interest thereon has not been passed on to any other person. According to learned counsel, the respondents on their own would be in no position to ascertain whether the disputed tax liability had been passed on to any person and therefore the said issue is necessarily made dependent upon a positive declaration being made to that effect by the assessee. According to learned counsel, the aforesaid issue assumes added significance especially when a question of refund is raised. It was the submission of learned counsel that unless the assessee makes a declaration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such duty] paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund: Provided that the amount of [duty of excise and interest, if any, paid on such duty] as determined by the Assistant [Principal Commissioner of Central Excise or Commissioner of Central Excise] [or Deputy [Principal Commissioner of Central Excise or Commissioner of Central Excise]] under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to-- (a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India; (b) unspent advance deposits lying in balance in the applicant's account current maintained with the [Principal Commissioner of Central Excise or Commissioner of Central Excise]; (c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act; (d) the [duty of excise and interest, if any paid on such duty] paid by the manufacturer, if he had not passed on the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re exported out of India; (B) "relevant date" means,-- (a) in the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods,-- (i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or (ii) if the goods are exported by land, the date on which such goods pass the frontier, or (iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India; (b) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process, in any factory, the date of entry into the factory for the purposes aforesaid; (c) in the case of goods to which banderols are required to be affixed if removed for home consumption but not so required when exported outside India, if returned to a factory after having been removed from such factory for export out of India, the date of entry into the factory; (d) in a case where a manufacturer is required to pay a sum, for a certain p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Excise or Commissioner of Central Excise] [or Deputy [Principal Commissioner of Central Excise or Commissioner of Central Excise]], under sub-section (2) of Section 11-B, the order passed by the Commissioner (Appeals), Appellate Tribunal [National Tax Tribunal] or, as the case may be, by the court shall be deemed to be an order passed under the said subsection (2) for the purposes of this section.]" 22. It would also be pertinent to notice Sections 35F and 35FF in order to highlight the distinction between the statutory scheme underlying refund of duty and the return of a pre-deposit made in connection with an appeal that may be preferred. Those two provisions are extracted hereinbelow: - "Section 35-F. Deposit of certain percentage of duty demanded or penalty imposed before filing appeal.--The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal-- (i) under sub-section (1) of Section 35, unless the appellant has deposited seven and a half per cent of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty. The claim of refund insofar as the petitioner is concerned arose in the backdrop of the order in original coming to be set aside in appeal. The petitioner appears to have made an application for refund ultimately and only after the departmental appeal before the CESTAT came to be dismissed. 24. We deem it apposite to observe that the mere pendency of an appeal or an order of stay that may operate thereon would not detract from the obligation of any person claiming a refund making an application as contemplated under Section 11B(1) within the period prescribed and computed with reference to the "relevant date". We do so observe in light of the indubitable principle that an order of stay that may operate in an appeal does not efface the demand or the obligation of refund that may have sprung into existence. It merely places the enforcement of the order appealed against in abeyance. The order of stay would, in any case, be deemed to have never existed once the appeal comes to be dismissed. 25. We further note that the subject of interest on delayed refund which is governed by Section 11BB itself prescribes the starting point for payment of interest on delayed refunds to be th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is also incumbent upon the assessee to declare and establish that the burden of tax has not been passed on. Absent that declaration, any refund that may be made would itself amount to the assessee being unjustly enriched. The making of an application and a declaration to the aforesaid effect is thus not merely an empty formality. This too appears to reinforce the imperatives of an application being formally made before a claim for refund is considered. 30. That only leaves the Court to consider the decisions which were cited by Mr. Mishra for our consideration. However, before proceeding to do so, we deem it pertinent to enter the following prefatory observations. A levy of interest on refund must undoubtedly follow where it is found that the amount has been unjustifiably retained or remitted with undue delay. The respondents cannot be permitted to retain moneys which are otherwise not due or are otherwise liable to be returned. The solitary question which stands raised in these matters is the date from which that interest would flow. In Shri Jagdamba Polymers, the High Court on facts had found that the refund was inordinately delayed even though a claim for the same had been pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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