2025 (6) TMI 754 - AT - Central Excise

Interest on the refund of a pre-deposit amount made under Section 35F of the Central Excise Act 1944 - releavant date for calculation of interest - from the date of deposit or from the date of communication of the appellate order or the date of refund? - applicability of Section 35FF of the Central Excise Act 1944 - HELD THAT - From the above decision of the Hon ble Supreme court in Willowood Chemicals Pvt. Ltd. 2022 (4) TMI 980 - SUPREME COURT it is evident that when the statute is silent about the interest to be paid on deposits made in particular situation then the courts have leverage to decide upon the interest but in cases where the statute provides for the payment of interest then in that case the courts should follow grant interest only in terms of the statute. Undisputedly in the present case the statute provided for the interest to be paid on the deposits made in terms of Section 35F at the time when the deposit was made. The said decision of the Hon ble Supreme Court has been rendered in a situation where there was no provision for refund of the amount deposited or payment of any interest on the amount deposited in absence of any provision the Hon ble Supreme Court has gone by the theory of interest to calculate that it is on account of holding of the capital of someone. However the present case is not of the same type. In the present case the interest alongwith the rate of interest has been prescribed by the statue. In terms of the decision in M/S ISOLUX CORSAN INDIA ENGINEERING AND CONSTRUCTION PVT. LTD. VERSUS COMMISSIONER OF CUSTOMS (PRE.) LUCKNOW 2025 (3) TMI 17 - CESTAT ALLAHABAD undisputedly appellant is entitled to interest on the amounts refunded to him after the dispute was finally determined in their favour by the order of this tribunal. However the interest as per these orders would necessary be governed by the provisions of section 11BB and should be paid after expiry of three months from the date of receipt of the application for refund and not from the date of deposit as has been held by the original authority in the orders dated 09.07.2019 and 18.07.2019. Even if it is held that appellant was entitled to refund of interest as per section 35 FF then also the interest could not have been paid from the date of deposit in view of the Proviso to section 35FF which provided that in respect of the amounts deposited prior commencement of Finance (No. 2) Act 2014 the provisions as contained in erstwhile section 35FF shall apply. Conclusion - The appellant is entitled to interest on the refund of the pre-deposit amount but such interest is payable only after the expiry of three months from the date of communication of the appellate order not from the date of deposit. Appeal dismissed.

Summary

The core legal questions considered in this appeal are:

1. Whether the appellant is entitled to interest on the refund of a pre-deposit amount made under Section 35F of the Central Excise Act, 1944, and if so, from which date the interest should be calculated-whether from the date of deposit or from the date of communication of the appellate order or the date of refund.

2. The applicability and interpretation of Section 35FF of the Central Excise Act, 1944, including its proviso relating to deposits made prior to the Finance (No. 2) Act, 2014 amendment.

3. The relevance and applicability of Sections 11B and 11BB of the Central Excise Act concerning refund claims and interest on delayed refunds.

4. The extent to which precedents, including Supreme Court and Tribunal decisions, support the appellant's claim for interest from the date of deposit.

5. Whether the interest rate applicable should be the statutory rate prescribed under the Act or a higher rate as awarded by courts under equitable principles or compensation doctrines.

6. The distinction between deposits made as pre-deposits under Section 35F and other types of deposits made during investigations or adjudication proceedings, and the consequent effect on interest entitlement.

7. The legal framework governing the payment of interest on delayed refunds, including the interplay between statutory provisions and equitable principles.

Issue-wise Detailed Analysis:

Issue 1 & 2: Entitlement to Interest on Refund of Pre-Deposit and Date from Which Interest is Payable

The relevant legal framework includes Section 35F (requiring pre-deposit for appeals), Section 35FF (interest on delayed refund of such deposits), and Sections 11B and 11BB (refund claims and interest on delayed refunds) of the Central Excise Act, 1944. Section 35FF prior to the 2014 amendment provided for interest payable only if the refund was delayed beyond three months from the date of communication of the appellate order. Post-2014 amendment, interest is payable from the date of payment of the amount till refund, but the proviso preserves the pre-2014 regime for deposits made prior to the amendment.

The appellant had deposited Rs. 60 lakh as a pre-deposit in 2007 pursuant to a CESTAT order and claimed refund in 2017 after the matter was decided in their favor. The original authority allowed the refund without interest. The Commissioner (Appeals) allowed interest only from three months after the communication of the appellate order until refund, rejecting the appellant's claim for interest from the date of deposit.

The Tribunal examined Section 35FF and held that since the deposit was made before the 2014 amendment, the pre-amendment provision applies, entitling interest only after three months from the date of communication of the appellate order. The Tribunal relied on multiple precedents confirming this interpretation, including decisions from various CESTAT benches and High Courts.

The appellant's reliance on judgments awarding interest from the date of deposit was distinguished on the ground that those cases involved deposits made during investigations or under departmental instructions, not pre-deposits under Section 35F. The Tribunal emphasized that pre-deposits are security deposits, not duty payments, and thus Sections 11B and 11BB do not apply to them.

Issue 3 & 4: Applicability of Sections 11B and 11BB and Precedents on Interest Calculation

Section 11B requires a formal application for refund of duty and interest, and Section 11BB prescribes interest on delayed refunds from the date of receipt of such application. The Tribunal noted that pre-deposits under Section 35F are distinct from duty payments and do not require an application for refund under Section 11B. Section 35FF specifically governs interest on delayed refund of pre-deposits.

The appellant cited decisions such as Riba Textiles Ltd. and Marshall Foundry & Engg. Pvt. Ltd., which held that interest should be paid from the date of deposit. However, the Tribunal found these decisions distinguishable because they dealt with deposits other than pre-deposits under Section 35F.

The Tribunal also reviewed the Supreme Court's decision in Sandvik Asia Ltd., which recognized entitlement to interest on delayed refunds but emphasized that the rate and period of interest must follow statutory provisions unless exceptional circumstances justify equitable compensation. The Tribunal observed that Sandvik Asia involved extraordinary delays and compensation, which is not the case here.

Issue 5: Rate of Interest and Compensation Principles

The statutory rate of interest under Section 11BB ranges between 5% and 36%, fixed by government notification. The appellant sought interest at 12%, relying on various judicial pronouncements awarding this rate as reasonable. The Tribunal acknowledged that while courts have discretion to award interest as compensation in the absence of statutory provisions, where the statute prescribes interest, that provision governs.

The Tribunal referred to decisions such as Parle Agro Pvt. Ltd. and Continental Engines Pvt. Ltd., which endorsed 12% as an appropriate rate for interest on delayed refunds or deposits, noting the variation in rates prescribed under different sections of the Central Excise Act. However, the Tribunal emphasized adherence to the statutory scheme applicable to pre-deposits under Section 35F and 35FF.

Issue 6: Distinction Between Pre-Deposits and Other Deposits

The Tribunal underscored the distinction between pre-deposits under Section 35F and other deposits made during investigations or adjudication. Pre-deposits are security deposits required for filing appeals and are not treated as duty payments. This distinction affects the entitlement to interest and the applicable statutory provisions.

The appellant's reliance on judgments involving deposits during investigations was rejected as not applicable to pre-deposits. The Tribunal reiterated that Sections 11B and 11BB, which govern refund of duty and interest, do not apply to pre-deposits, which are governed by Section 35FF.

Issue 7: Legal Framework Governing Interest on Delayed Refunds

The Tribunal analyzed the interplay between Sections 11B, 11BB, 35F, and 35FF, and relevant Supreme Court decisions. It noted that Sections 11B and 11BB require a refund application and govern interest on delayed refunds of duty, whereas Section 35FF imposes an obligation to pay interest on delayed refund of pre-deposits without requiring an application.

The Tribunal highlighted the Supreme Court's rulings in Ranbaxy Laboratories Ltd. and subsequent decisions, which clarified that interest under Section 11BB commences after three months from receipt of refund application, not from the date of deposit or appellate order. The Tribunal also referred to the Delhi High Court's decision in Goldy Engineering Works, which distinguished between refund of duty and refund of pre-deposits, reinforcing the statutory scheme.

The Tribunal concluded that the appellant is entitled to interest under Section 35FF at the rate prescribed in Section 11BB, payable after three months from communication of the appellate order, consistent with the proviso preserving the pre-2014 regime for deposits made before the amendment.

Competing Arguments and Treatment

The appellant argued for interest from the date of deposit based on equitable principles and various judicial precedents awarding such interest. The Revenue and the Commissioner (Appeals) contended that the statutory provisions, particularly the proviso to Section 35FF, limit interest to the period after three months from communication of the appellate order.

The Tribunal carefully distinguished the precedents cited by the appellant, noting differences in factual and legal contexts, especially regarding the nature of the deposit. It emphasized strict adherence to the statutory provisions governing pre-deposits and interest entitlement.

The Tribunal also addressed the appellant's reliance on judgments awarding higher rates or interest from the date of deposit, clarifying that such awards are exceptions or based on equitable grounds where statutory provisions are silent or inapplicable, which is not the case here.

Conclusions

The Tribunal held that the appellant is entitled to interest on the refund of the pre-deposit amount, but such interest is payable only after the expiry of three months from the date of communication of the appellate order, not from the date of deposit.

The interest rate is to be as specified in Section 11BB of the Central Excise Act, consistent with the statutory scheme and government notifications.

The appeal was dismissed, affirming the Commissioner (Appeals) order.

Significant Holdings:

"From the aforesaid provisions of law, it is clear that earlier the interest was liable to be paid only in the case of delay beyond three months in granting the refund, whereas post 6-8-2014, the interest will have to be paid from the date of payment of the amount till the date of refund of such amount. Proviso to Section 35FF as extracted supra clearly mandates that the earlier provision of Section 35FF shall apply to the amount deposited prior to the commencement of 2014 Act."

"Therefore, I conclude that in the present case, interest is payable to the appellant at the rate specified in Section 11BB after the expiry of three months from the date of communication of the order of the appellate authority, till the date of refund of such amount and not from the date of payment of said amount of Rs. 60 Lacs."

"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 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."

"Section 35FF as distinct from Section 11B does not require the making of a formal application by the assessee. In fact and contrary to Section 11B, the said provision uses the expression '...there shall be paid to the appellant interest...'. Thus, the language of Section 35FF is an embodiment of the manifest obligation of the respondents to refund the pre-deposit consequent to an order passed by the Appellate Authority notwithstanding an application having not been made by the depositor."

"The liability of the revenue to pay interest under Section 11BB 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 order of refund is made."

"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 Sections 11B and 35FF is also evident when one bears in mind the language employed in the latter and which stipulates that interest would commence from the date when the amount deposited by the appellant under Section 35F is required to be refunded consequent to an order passed by the Appellate Authority."

"When a specific provision has been made under the statute, such provision has to govern the field. Therefore, the Court has to take all relevant factors into consideration while awarding the rate of interest on the compensation."

"The appellant is entitled to claim the interest on delayed refund from the date of deposit till its realization." (Distinguished on facts by the Tribunal as not applicable to pre-deposits under Section 35F.)

"The appeal is dismissed."