2025 (6) TMI 756 - AT - Central Excise

Rejection of claim of interest on refund - entitlement to interest on refund amount when the refund was sanctioned within two months of the filing the refund application - HELD THAT - Section 11B of CEA 1944 as it stood then provides for claim for refund of duty and interest if any paid on such duty . It provides the procedure and prescribed the limitation of one year from the relevant date for filing application for refund. The relevant date as per Explanation (B)clause (ec) of section 11B ibid means in case where the duty becomes refundable as a consequence of judgment decree or a direction of appellate authority Appellate Tribunal or any court the date of such judgment decree order or direction. Section 11 BB ibid at that time provides for interest on delayed refunds when the duty ordered to be refunded u/s. 11B ibid is not refunded within three months from the date of receipt of application for refund. Since there is no such delay herein as the refund was granted within two months of filing refund application no interest can be allowed under the said provision. As regards the reliance on Sandvik Asia Ltd. 2006 (1) TMI 55 - SUPREME COURT is concerned in that matter there was inordinate delay of 17-18 years on the part of revenue in refunding certain amount including interest to the assessee therein without any rhyme or reason and therefore the Hon ble Supreme Court had taken the view that the assessee is entitled for compensation for the unjustifiable withholding of interest and refund amount. In that matter the refund pertains to the assessment years 1977-78 1978-79 1981-82 and 1982-83 and the Hon ble Supreme Court specifically observed that in view of express provisions of Income Tax Act assessee is entitled for compensation by way of interest on the delayed payment of due amount which was wrongly withheld by the department. Tribunal cannot exercise such sweeping powers which are bestowed upon the Constitutional Courts. Being a creature of statue Tribunal cannot exercise powers contrary to the scheme of Statute. Time and again it has been held that the authorities which are acting under a statute must act within the four corners thereof. This Tribunal being a statutory tribunal exercise powers conferred by the statute. The powers of Tribunal are circumscribed by the statute and it cannot act beyond the statutory provisions. Since at the relevant time there was no provision in the Central Excise Act prescribing payment of interest from the period of deposit during investigation until refund the same cannot be granted to the appellant. It is undoubtedly true if the department is negligent or there was inordinate delay in releasing the refund then certainly taking recourse to the law laid down by the Hon ble Supreme Court in the matter of Sandvik India Ltd. as a compensatory measure interest on refund could have been considered but such is not the case here as there is no delay at all and within two months of filing application for refund the same was sanctioned. Conclusion - The appellant is not entitled to interest on the refund amount where the refund is sanctioned within the statutory period of three months and the amount deposited during investigation is treated as duty paid not a pre-deposit for appeal. There are no infirmity in the impugned order. The instant Appeal is accordingly dismissed.

Summary

The primary legal question considered by the Tribunal was whether the appellant is entitled to interest on a refund amount when the refund was sanctioned within two months of the filing of the refund application. This core issue encompasses several subsidiary questions including the characterization of the amount deposited during investigation (whether it is a deposit under protest or payment of duty), the applicability of statutory provisions governing refund and interest, and the relevance of judicial precedents cited by both parties.

Another related issue was the interpretation and applicability of various statutory provisions under the Central Excise Act, 1944, namely Sections 11B, 11BB, 35F, and 35FF, as they stood at the time of the deposit (2006) and at the time of refund claim (2020). The Tribunal also examined whether the principles laid down in landmark Supreme Court decisions, particularly the Sandvik Asia Ltd. case and its subsequent clarifications, support the appellant's claim for interest on the refund amount.

Regarding the first issue of entitlement to interest on refund sanctioned within two months, the Tribunal analyzed the relevant statutory framework. Section 11B of the Central Excise Act, 1944, as it stood in 2006, provides for the claim of refund of duty and interest, if any, paid on such duty. The 'relevant date' for refund claims arising from appellate orders is the date of such judgment or order. Section 11BB prescribes interest on delayed refunds when the refund is not made within three months from the date of receipt of the refund application. In the instant case, since the refund was sanctioned within two months, no delay occurred, and therefore, no interest is payable under Section 11BB.

The appellant contended that the amount deposited during investigation was a deposit under protest and not a payment of duty, thus entitling them to interest as compensation for wrongful deprivation of use of funds since June-July 2006. The Tribunal rejected this contention, emphasizing that the payment made during investigation is treated as duty amount and not a pre-deposit for appeal under Section 35F. The latter provision applies only to deposits made to avail the right of appeal and was not applicable here, as the deposit was made during investigation and not for filing any appeal. Moreover, Section 35FF, which provides for interest on delayed refunds of pre-deposits under Section 35F, was introduced only in 2008, two years after the deposit in question.

The Tribunal further noted that the appellant's reliance on judicial precedents such as Sandvik Asia Ltd., Ranbaxy Laboratories Ltd., and Kull Fire Works was misplaced. In Sandvik Asia Ltd., the Supreme Court awarded interest as compensation due to an inordinate delay of 17-18 years by the revenue in refunding amounts, including interest. The Tribunal highlighted the clarification by a Three Judges' Bench of the Supreme Court in a later case, which explained that the Sandvik decision was confined to compensation for undue delay in refund payment and did not establish a general right to interest on interest or interest from the date of deposit during investigation. The Tribunal reproduced the relevant paragraphs from the later Supreme Court judgment, emphasizing that Sandvik addressed compensation for delay and not entitlement to interest on deposits made during investigation.

The Tribunal also distinguished the appellant's case from those where pre-deposits under Section 35F were involved or where the Income Tax Act's provisions on interest on refunds were applicable. The Central Excise Act, as it stood in 2006, did not contain provisions for interest on refunds of amounts deposited during investigation, and the Tribunal cannot grant interest beyond the statutory scheme. The Tribunal underscored that it is a creature of statute and must act within the four corners of the law, without exercising powers akin to constitutional courts.

In applying the law to the facts, the Tribunal found that since the refund was sanctioned promptly within two months of the refund claim, no delay existed to justify interest under Section 11BB. The amount deposited was treated as duty paid during investigation, not as a pre-deposit for appeal, hence Sections 35F and 35FF were inapplicable. The appellant's claim for interest from the date of deposit in 2006 was therefore not sustainable under the statutory provisions in force at the relevant time.

The Tribunal considered and rejected the competing arguments of the appellant regarding the nature of the deposit and the entitlement to interest, as well as the revenue's position that the refund and interest claims must be governed strictly by the statutory provisions. The Tribunal found the revenue's submissions consistent with the statutory framework and judicial precedents, including the appellant's own reliance on the Ranbaxy Laboratories Ltd. decision.

Consequently, the Tribunal concluded that the impugned orders rejecting interest on the refund amount were legally sound and dismissed the appeal.

The significant holdings of the Tribunal include the following:

"The amount in issue becomes refundable consequent to the order of the Tribunal dated 22.11.2019 and prior to that there was no ground for the appellant to claim any refund."

"Section 35 ibid applies only on pre-deposit made for availing the right of appeal and the said amount is liable to be refunded when the appeal is allowed with consequential relief since it is not a payment of duty."

"Section 11B ibid provides the procedure and prescribed the limitation of one year from the relevant date for filing application for refund. The 'relevant date' as per Explanation (B) clause (ec) of section 11B ibid means in case where the duty becomes refundable as a consequence of judgment, decree or a direction of appellate authority, Appellate Tribunal or any court, the date of such judgment, decree, order or direction."

"Section 11BB ibid at that time provides for interest on delayed refunds when the duty ordered to be refunded u/s. 11B ibid is not refunded within three months from the date of receipt of application for refund. Since there is no such delay herein, as the refund was granted within two months of filing refund application, no interest can be allowed under the said provision."

"The aforesaid decision [Sandvik Asia Ltd.] has been clarified by the Hon'ble Three Judges' Bench of the Hon'ble Supreme Court... In our considered view, the aforesaid judgment has been misquoted and misinterpreted by the assessees and also by the Revenue... the Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period... the Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest."

"The payment made during the course of investigation cannot take the color of pre-deposit by any stretch and it will be treated as duty amount only."

"The Tribunal, being a statutory tribunal, exercise powers conferred by the statute. The powers of Tribunal are circumscribed by the statute and it cannot act beyond the statutory provisions."

"Since at the relevant time there was no provision in the Central Excise Act prescribing payment of interest from the period of deposit during investigation until refund, the same cannot be granted to the appellant."

"It is undoubtedly true if the department is negligent or there was inordinate delay in releasing the refund then certainly taking recourse to the law laid down by the Hon'ble Supreme Court in the matter of Sandvik India Ltd. as a compensatory measure interest on refund could have been considered but such is not the case here as there is no delay at all and within two months of filing application for refund the same was sanctioned."

In sum, the Tribunal held that the appellant is not entitled to interest on the refund amount where the refund is sanctioned within the statutory period of three months, and the amount deposited during investigation is treated as duty paid, not a pre-deposit for appeal. The statutory provisions in force at the relevant time do not provide for interest on such refunds from the date of deposit, and the principles laid down in judicial precedents concerning compensation for delay are inapplicable in the absence of any delay.