2025 (7) TMI 839 - AT - Central Excise

Interest on refund claim - calculation of interest for the period after three months from the date of the receipt of the refund claim or not - HELD 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 issue involved in the present case is no longer res-integra and is squarely covered by the decisions of Tata Iron and Steel Company 2013 (11) TMI 534 - JHARKHAND HIGH COURT Hon ble Jharkhand High Court observed that the writ petitioner is entitled to interest from the date of the judgment of Hon ble Supreme Court dated 22-1-1997 till the refund of the amount of Rs. 50 lacs on 12-1-1999. Appellant relied upon the Hon ble Supreme Court judgment in the case of Dr. Poornima Advani ANR. V/s Government of NCT ANR. 2025 (3) TMI 60 - SUPREME COURT . In the said decision the Hon ble Supreme Court has held that Money received and retained without right carries with it the right to interest. There being no express statutory provision for payment of interest on the refund of excess amount/tax collected by the Revenue the Government cannot shrug off its apparent obligation to reimburse the deductors lawful monies with accrued interest for the period of undue retention of such monies. Obligation to refund money received and retained without right implies and carries with in the right to interest. 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. Thus 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. Thus interest will be payable as per the provisions of Section 35FF read with Section 11BB of the Central Excise Act - appeal dismissed.

Summary

The core legal questions considered in this judgment revolve around the entitlement and calculation of interest on delayed refunds of amounts deposited under statutory provisions related to Central Excise, specifically:

• Whether the appellant is entitled to interest on the refund amount deposited during investigation and adjudication proceedings, including amounts reversed prior to departmental visits.
• The applicable date from which interest on delayed refunds should be calculated-whether from the date of deposit of the amount or from the date of receipt of refund application or communication of appellate orders.
• The appropriate rate of interest payable on such delayed refunds under the Central Excise Act, 1944, and related statutes, and whether judicially determined rates or statutory rates govern.
• The interpretation and applicability of Sections 11B, 11BB, 35F, and 35FF of the Central Excise Act, 1944, and analogous provisions under the Income Tax Act, 1961, in the context of refund claims and interest on delayed refunds.
• The treatment of competing arguments regarding statutory versus equitable interest claims, and the relevance of precedent decisions including those of the Supreme Court and various High Courts and Tribunals.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Refund Amounts Deposited During Investigation and Prior Reversal

The appellant, engaged in manufacture involving both dutiable and non-dutiable products, had reversed an amount of Rs. 12,01,087/- prior to departmental investigation and deposited Rs. 26,77,842/- during investigation as proportionate reversal. The refund claim included both amounts. The original adjudicating authority rejected interest on the Rs. 26,77,842/- but allowed refund without interest on Rs. 12,01,087/-. The Commissioner (Appeals) partly allowed interest on Rs. 12,01,087/-.

The Tribunal examined various precedents, including decisions from Parle Agro Pvt. Ltd., Riba Textiles Ltd., and Marshall Foundry & Engg. Pvt. Ltd., which held that interest on delayed refunds is payable from the date of deposit of the amount until realization. These decisions heavily relied on the Supreme Court's ruling in Sandvik Asia Ltd., which recognized the principle that when money is unjustifiably withheld by the Department, interest is payable as compensation for the delay.

However, the Tribunal noted that the refund claim under Section 11B of the Central Excise Act requires a formal application for refund, and interest under Section 11BB accrues only after three months from the date of receipt of such application. Section 35FF, dealing with deposits under Section 35F (pre-deposits in appeals), mandates interest on delayed refunds from the date of communication of the appellate order if refund is not made within three months.

The Tribunal distinguished between refund of duty and refund of pre-deposits, emphasizing that pre-deposits are not "duty" and have separate provisions for refund and interest. It held that interest entitlement depends on the statutory provisions applicable to the nature of the refund claim.

2. Date from Which Interest on Delayed Refund is Payable

The appellant contended that interest should be calculated from the date of deposit of the amounts. The original authority and Commissioner (Appeals) held that interest should be calculated from the date of expiry of three months from the date of receipt of the refund application or communication of appellate orders.

The Tribunal analyzed the statutory framework and precedents, including the Supreme Court's decision in Ranbaxy Laboratories Ltd., which clarified that under Section 11BB, interest liability commences from the expiry of three months from the date of receipt of the refund application, not from the date of the appellate order or deposit.

It also referred to the proviso to Section 35FF, which states that for amounts deposited prior to the Finance (No. 2) Act, 2014, interest is payable only after three months from the date of communication of the appellate authority's order.

The Tribunal thus concluded that interest cannot be claimed from the date of deposit but only after the statutory waiting period following receipt of the refund claim or communication of the appellate order, consistent with statutory provisions and judicial precedents.

3. Appropriate Rate of Interest Payable on Delayed Refunds

The appellant sought interest at rates ranging from 12% to 15% per annum, relying on various Tribunal and High Court decisions. The revenue contended for adherence to statutory rates.

The Tribunal reviewed notifications under Sections 11AA, 11BB, 11DD, and 11AB of the Central Excise Act prescribing interest rates varying from 6% to 18% per annum for different contexts. It noted that in the absence of a specific statutory rate for refund of revenue deposits, courts have adopted the rate of 12% per annum as appropriate, as held in multiple decisions including Parle Agro Pvt. Ltd. and Riba Textiles Ltd.

However, the Tribunal emphasized the Supreme Court's ruling in Gujarat Fluoro Chemicals, which clarified that interest awards must conform to statutory provisions unless exceptional circumstances justify deviation. It held that where the statute prescribes the rate, courts must adhere to it.

In the present case, since the refund claim falls under Section 35FF read with Section 11BB, the rate of interest fixed by the Central Government notification applies. The Tribunal accepted the rate of 12% per annum as appropriate, consistent with the statutory scheme and judicial discipline.

4. Interpretation of Statutory Provisions Governing Refund and Interest

The Tribunal undertook a detailed examination of the relevant statutory provisions:

• Section 11B: Governs claims for refund of duty and interest paid.
• Section 11BB: Provides for interest on delayed refunds if refund is not made within three months from receipt of refund application.
• Section 35F: Requires deposit of a percentage of disputed duty or penalty before filing appeal.
• Section 35FF: Mandates interest on delayed refund of amounts deposited under Section 35F, payable if refund is not made within three months from communication of appellate order.

The Tribunal distinguished refund claims under Section 11B (refund of duty) and refund of pre-deposits under Section 35F/35FF, noting that the latter does not require a refund application and interest accrues from communication of appellate order.

The Tribunal also referred to analogous provisions under the Income Tax Act, 1961 (Sections 243 and 244), and judicial precedents interpreting these provisions, which are parimateria with Central Excise provisions, to reinforce the principles governing interest on delayed refunds.

5. Treatment of Competing Arguments and Precedents

The appellant relied on decisions granting interest from the date of deposit and at higher rates, invoking the principle of restitution and equitable compensation for illegal or unjustified retention of money by the Department.

The revenue and original authorities argued for strict adherence to statutory provisions, limiting interest to the period after expiry of three months from receipt of refund application or communication of appellate order, and at rates notified by the Central Government.

The Tribunal carefully balanced these positions, acknowledging the equitable principles underlying interest awards but emphasizing that where the statute provides specific provisions and rates, those must govern. It distinguished cases where no statutory provision existed, allowing courts to award equitable interest, from the present case where statutory provisions are applicable.

The Tribunal also noted the Supreme Court's caution against awarding interest on interest and the requirement that interest awards must be consistent with the statutory framework.

6. Conclusions on Each Issue

• The appellant is entitled to interest on delayed refund amounts, but interest accrues only after expiry of three months from the date of receipt of refund application or communication of appellate order, not from the date of deposit.
• The appropriate rate of interest payable is 12% per annum, as per statutory notifications and consistent judicial rulings.
• The refund claim and interest entitlement must be governed by the provisions of Sections 11B, 11BB, 35F, and 35FF of the Central Excise Act, 1944, and not by general equitable principles or precedents where statutory provisions are absent.
• The Tribunal upheld the impugned order which allowed interest on the amount of Rs. 12,01,087/- after three months from the date of filing the refund application, and rejected interest on Rs. 26,77,842/- as the refund was sanctioned within three months from the date of filing the refund claim.

Significant Holdings:

"The Hon'ble Apex Court has answered the issue holding that the assessee is entitled to claim the interest from the date of payment of initial amount till the date its refund."

"Interest on delayed refund is payable after expiry of 3 months from the date of granting refund or from the date of communication of order of the appellate authority, which are parimateria."

"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."

"When a specific provision has been made under the statute, such provision has to govern the field."

"The grant of interest @ 12% per annum seems to be appropriate."

"The provisions of section 35FF prior to amendment provide that interest shall be paid after expiry of three months from the date of communication of the order of the appellate authority."

"The appellant is entitled to interest on delayed refund from the date of deposit till its realization, but subject to the statutory provisions governing the timing and rate of interest."

These principles establish that interest on delayed refunds under the Central Excise Act must be calculated from the statutory dates, at rates notified by the Central Government, and that equitable principles apply only where statutory provisions are silent. The Tribunal dismissed the appeal, affirming the correctness of the impugned order in this regard.