REJECTION OF CLAIM OF INTEREST ON REFUND UNDER CUSTOMS ACT, 1962

[Mr. M. GOVINDARAJAN]

In VIDEOCON INDUSTRIES LTD VERSUS C.C.E. & S.T. -VADODARA-II - 2023 (9) TMI 1014 - CESTAT AHMEDABAD , the appellant in a case paid the anti-dumping duty at the insistence of the Department.  Later on the appellant challenged the imposition of anti-dumping duty in the CEGAT.  The CEGAT allowed the appeal of the appellant vide their order on 15.11.2002.  On the basis of the order of CEGAT, the appellant filed an application for refund in respect of ant-dumping duty along with interest on 22.04.2003 before the Department.  On 05.11.2003 the Department sanctioned the refund order but credited into Consumer Welfare Fund on the ground of unjust enrichment. 

Against the order of the Adjudicating Authority the appellant filed a writ petition before High Court.  The High Court directed the appellant to file appeal before Commissioner (Appeals). The appellant filed appeal before the Commissioner (Appeals) on 30.03.2011.  The Commissioner (Appeals) allowed the appeal vide the order dated 13.04.2012.  The appellant, therefore, filed a revised claim with interest on refund.  The Adjudicating Authority, vide their order dated 25.06.2012 sanctioned the refund amount but rejected to grant interest on the refund amount on the ground that there is no specific order of Commissioner (Appeals) for granting interest on refund amount.  Being aggrieved against the order of Adjudicating Authority the appellant filed an appeal before Commissioner (Appeals).  The Commissioner (Appeals) dismissed the appeal holding that the refund was given within three months from the date of application and hence no interest is payable, vide their order dated 13.04.2012.

Being aggrieved with the order of the Commissioner (Appeals), the appellant filed an appeal before CESTAT.  In the meanwhile the corporate insolvency resolution process was initiated against the appellant.  Moratorium was announced under Section 14 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) by the Adjudicating Authority.  The CESTAT wanted to decide whether the CESTAT can proceed the appeal since there was moratorium under the Code.

The Resolution Professional (‘RP’ for short) submitted  before the CESTAT that since in this appeal the proceeding is in favor of the appellant company moratorium provided under Section 14 of IBC does not apply and proceeding can be continued.  He relied on the judgment of Delhi High Court in POWER GRID CORPORATION OF INDIA LTD VERSUS JYOTI STRUCTURES LTD. - 2017 (12) TMI 1660 - DELHI HIGH COURT.

The CESTAT analyzed the above case law.  The issue involved in this case is as to whether proceedings under Section 34 of the Act, need to be stayed, per Section 14 (1)(a) of the Code?  The respondent submitted that if the proceedings are stayed, the respondent would be unable to execute the award given in its favor for an extended period till the moratorium exists and be unable to recover its dues thereby further impeding its financial condition.  If the word “proceedings” used in Section 14 (1) (a) of the Code be read to mean ‘all legal proceedings’ or be read restrictively to mean a particular type of legal proceedings viz., ‘debt recovery action’ which may have an effect of dissipating or diminishing the debtor’s assets during the period of its insolvency resolution.

The Supreme Court, while analyzing Section 14 of the Code, observed that Section 14 of the Code would not apply to the proceedings which are in the benefit of the corporate debtor, like the one before this court in as much these proceedings are not a ‘debt recovery action’ and its conclusion would not endanger, diminish, dissipate or impact the assets of the corporate debtor in any manner whatsoever and hence shall be in sync with the purpose of moratorium which includes keeping the corporate debtor’s assets together during the insolvency resolution process and facilitating orderly completion of the process envisaged during the insolvency resolution process and ensuring the company may continue as a going concern.

The Law Committee Report provides that on the rationale and design of the Code also demonstrates the moratorium is to apply to recovery actions and filing of new claims against the corporate debtor and the purpose behind moratorium is there should be no additional stress on the assets of the corporate debtor.

The Supreme Court observed that once the moratorium comes into effect, no proceedings against the corporate debtor may continue. No doubt to the said proposition of law as stated above, but one need to see the nature of the proceedings; if such proceedings is against the corporate debtor or is in its favor. Stay of proceedings against an award in favor of the corporate debtor would rather be stalking the debtor’s effort to recover its money and hence would not fall in the embargo of Section 14 (1) (a) of the Code.

The Supreme Court held that the proceedings in this case would not be hit by the embargo of Section 14(1)(a)-

• proceedings’ do not mean ‘all proceedings;
• moratorium under section 14(1)(a) of the code is intended to prohibit debt recovery actions against the assets of corporate debtor
• continuation of proceedings under section 34 of the Arbitration Act which do not result in endangering, diminishing, dissipating or adversely impacting the assets of corporate debtor are not prohibited under section 14(1)(a) of the code
• term ‘including’ is clarificatory of the scope and ambit of the term ‘proceedings
• the term ‘proceeding’ would be restricted to the nature of action that follows it i.e. debt recovery action against assets of the corporate debtor; 
• the use of narrower term “against the corporate debtor” in section 14(1)(a) as opposed to the wider phase “by or against the corporate debtor” used in section 33(5) of the code further makes it evident that section 14(1)(a) is intended to have restrictive meaning and applicability.

The Supreme Court held that the continuation of these proceedings shall cause no harm to either party’s rights to seek determination of issues under section 34 of the Act and object of the code shall be preserved rather than defeated.

The CESTAT, in reliance of the above said Supreme Court judgment, observed that it is clear that the moratorium provision would apply to all those proceedings which are against the corporate debtor. However, in the present appeal the proceeding is in favor of the appellant (Corporate Debtor) as in this appeal the appellant is claiming the interest on refund. This appeal would not affect adversely the resolution plan.  The CESTAT held that appeal proceeding can be continued and disposed of. Therefore, the appeal was taken up for disposal by CESTAT.

In respect of interest payable on refund amount the CESTAT analyzed the provisions of Section 27A of the Customs Act.  The CESTAT observed that the assessee is entitled for the refund if the same is not refunded within three months from the date of receipt of application under sub section (1) of Section 27.   In the present case the application for refund which had arisen from the CEGAT’s order dated 15.11.2002 was filed on 22.04.2003. The said refund though sanctioned but credited into Consumer welfare fund thereafter from 22.04.2003 till 25.06.2012 refund was not granted as the matter of refund itself was under litigation before the High Court, Commissioner (Appeals) and finally the refund was granted to the appellant only on 25.06.2012.  The CESTAT held that the appellant is entitled for interest on the amount already refunded for the period from 22.07.2003 (three months after the date of application) till 25.06.2012 (date of grant of refund).

The CESTAT set aside the impugned order and allowed the appeal.