2025 (5) TMI 1993 - AT - Central Excise

Entitlement to interest on refund of amounts deposited under protest or during the pendency of proceedings under the Central Excise law - HELD THAT - Though the issue of grant of interest on the pre- deposits has been a subject matter of litigation for long in a recent judgment in the case of Goldy Engineering Works 2023 (7) TMI 715 - DELHI HIGH COURT Hon ble Delhi High Court has put to rest the different interpretations on this issue holding that interest is governed only by two provisions i.e. Section 11BB and Section 35FF of the Central Excise Act; in the case of refund of deposit made during the investigation or during the proceedings shall be governed by Section 11B and accordingly the interest shall be governed by Section 11BB. Hon ble Apex Court in 2025 (4) TMI 1186 - SC ORDER has affirmed the decision of the Hon ble Delhi High Court and thus the decision has become the law of the land. The decision of the Hon ble Delhi High Court also being upheld by the Hon ble Apex Court is squarely applicable to the instant case. Conclusion - The interest on delayed refunds under the Central Excise Act is strictly governed by Sections 11B and 11BB requiring a formal refund application and limiting interest to delays beyond three months from the date of such application. Deposits made during proceedings but not under Section 35F do not attract interest from the date of deposit. Appeal dismissed.

Summary

The core legal questions considered in this judgment revolve around the entitlement to interest on refund of amounts deposited under protest or during the pendency of proceedings under the Central Excise law. Specifically, the issues addressed include:

1. Whether appellants are entitled to interest on the refund of amounts deposited during the pendency of show cause proceedings and appeals, particularly when the refund is sanctioned after the deposit was made but before the final adjudication.

2. The applicability and interpretation of Sections 11B and 11BB of the Central Excise Act, 1944, concerning the grant of interest on delayed refunds.

3. The distinction between deposits made as a pre-condition for filing appeals under Section 35F and deposits made under protest during investigation or proceedings, and how these affect entitlement to interest under Sections 11B, 11BB, and 35FF.

4. The relevance and binding nature of recent Supreme Court and High Court decisions on the issue of interest on refunds and the procedural requirements for claiming such interest.

Issue 1: Entitlement to Interest on Refund of Deposits Made During Proceedings

The appellants contended that they were entitled to interest on the refund of deposits made during the pendency of the proceedings, relying on a series of decisions from various Benches of the Tribunal and High Courts which had ruled in favor of interest payment from the date of deposit. They argued that even though the Central Excise Act and Rules do not explicitly provide for the manner of treatment of such refunds, the Department has long treated these deposits akin to duty refunds under Section 11B, entitling appellants to interest. The appellants cited multiple precedents supporting their claim.

The Department, however, argued that interest on refunds is governed only by Sections 11B and 35FF of the Central Excise Act. Since the deposit was not made as a pre-condition for filing an appeal (Section 35F) nor under any appellate direction, Section 35FF was inapplicable. The Department relied on Supreme Court decisions emphasizing strict adherence to statutory provisions and contended that interest cannot be granted beyond the scope of these provisions. They further relied on a recent Supreme Court ruling holding that interest on refunds shall be paid only after three months from the date of filing the refund application.

The Tribunal examined the facts: the deposit was made on 27.08.2018, the show cause notice was issued in 2010, and the refund claim was filed on 13.11.2018. The Assistant Commissioner sanctioned the refund but denied interest, reasoning that the refund was sanctioned within three months of the claim and thus no interest was payable.

Issue 2: Interpretation of Sections 11B and 11BB Regarding Interest on Refunds

The Tribunal extensively analyzed the recent judgment of the Hon'ble Delhi High Court in the case of Goldy Engineering Works, which was affirmed by the Supreme Court. This judgment clarified the legal framework governing interest on refunds under the Central Excise Act:

• Section 11B(1) requires a formal application for refund by the person claiming refund of duty and interest paid on such duty.
• Section 11BB prescribes that interest on delayed refunds shall commence only after three months from the date the refund application under Section 11B is received.
• Section 35FF, distinct from Section 11B, deals with interest on pre-deposits made under Section 35F as a condition for filing appeals, where no formal refund application is required, and interest starts from the date of the appellate order.

The Court emphasized that the mere pendency of an appeal or stay order does not eliminate the obligation to file a refund application under Section 11B to claim interest. The refund of duty and interest is distinct from pre-deposits made under protest or appeal conditions, and statutory provisions regulating refunds must be strictly followed. The Court rejected the contention that deposits made during proceedings without being pre-deposits under Section 35F should automatically attract interest from the date of deposit.

Issue 3: Distinction Between Pre-Deposits and Deposits Made Under Protest

The judgment highlighted the legal distinction between deposits made as a pre-condition for filing an appeal under Section 35F and deposits made under protest during investigation or show cause proceedings. The former is not considered "duty" and attracts interest under Section 35FF from the date of the appellate order without requiring a refund application. The latter requires a formal refund application under Section 11B, and interest under Section 11BB begins only after three months from the date of such application.

The Court also noted the policy considerations that refund of duty requires the assessee to declare that the tax burden has not been passed on to avoid unjust enrichment, reinforcing the necessity of a formal refund application.

Issue 4: Applicability of Precedents and Final Determination

The Tribunal found the facts of the instant case closely aligned with the Goldy Engineering Works decision and subsequent Supreme Court affirmation. The appellants had filed the refund application on 13.11.2018, and the refund was sanctioned within three months, thus no interest was payable under the statutory scheme. The Tribunal distinguished earlier decisions cited by the appellants, noting that those either dealt with different factual matrices or did not involve the statutory framework of Sections 11B and 11BB.

The Tribunal held that the jurisprudence on interest on refunds has been settled by the Supreme Court, and the appellants were not entitled to interest beyond the statutory provisions. The appeal was accordingly dismissed.

Significant Holdings:

"Section 11B(1) in clear and unambiguous terms contemplates the making of an application for refund being made by any person claiming refund of any duty of excise and interest paid on such duty."

"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."

"A refund of duty and interest paid thereon is liable to be viewed as distinct from a pre-deposit that may be made in compliance with Section 35F of the 1944 Act."

"Interest shall be paid after three months from the date of filing of refund application."

"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'. The order of stay would, in any case, be deemed to have never existed once the appeal comes to be dismissed."

"The respondents shall revisit the issue of payment of interest in light of the observations made hereinabove. Interest, if any, shall be liable to be computed and paid to the petitioners if it be found that the refund was affected beyond a period of three months when computed from the date when the respective applications were made and received."

In conclusion, the Tribunal affirmed the principle that interest on delayed refunds under the Central Excise Act is strictly governed by Sections 11B and 11BB, requiring a formal refund application and limiting interest to delays beyond three months from the date of such application. Deposits made during proceedings but not under Section 35F do not attract interest from the date of deposit. The appeal was rejected, upholding the Department's denial of interest on the refund in question.