REFUND OF PRE-DEPOSIT

[Mr. M. GOVINDARAJAN]

Section 35F of the Central Excise Act, 1944 provides that where in any appeal under this Chapter, the decision or order appealed against relates to any duty demanded in respect of goods which are not under the control of central excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied. Where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue.

Section 129E of the Customs Act, 1962 provides that where in any appeal under this Chapter, the decision or order appealed against relates to any duty and interest demanded in respect of goods which are not under the control of the customs authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the proper officer the duty and interest demanded or the penalty levied. Where in any particular case, the Commissioner (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty and interest demanded or penalty levied would cause undue hardship to such person, the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue.

The appeal filed by the assessee may be in favor of him or against him or the matter may be remanded to the lower authority.   If the case is in favor of the assessee then the assessee is entitled to receive the deposit amount made by him for the purpose of filing appeal. Section 35F of the Central Excise Act or Section 129E of the Customs Act does in no way provide for any type of compensation in the event of an appellant finally succeeding in the appeal.   The refunds so claimed are covered under the provisions of Section 11B of the Act and are governed by the parameters applicable to the claim of refund of duty as the amount is deposited under Section 35F of the Central Excise Act, 1944.

In ‘Nelco Limited V. Union of India’ – 2001 (1) TMI 102 - HIGH COURT OF JUDICATURE AT BOMBAY the appellant, a public limited company engaged in the manufacture of exigible goods, including computers, had some disputes with the department about the duty on certain items, in the course of resolution of which through the appellate forum, it had made a pre-deposit of a sum of Rs. 20 lakhs under Section 35F of the Central Excise Act, 1944. By an order dated the 24th January 1997, the CEGAT partly allowed the appellant's claim, following which the appellant preferred an appeal to the Supreme Court, which by its order date dated 3rd November, 1999, set aside the order of the Tribunal and held that all the demands against the appellant were time barred, thus allowing the appellant's claim in full. Following the verdict of the Supreme Court, the appellant approached the department in December 1999 seeking refund of the pre-deposit made by it, but received a show cause notice in July 2000, calling upon the appellant to show cause why the refund should not be denied to the appellant. Following some correspondence which did not yield any result, the appellant filed a Writ Petition before the Court seeking refund of the deposit and interest at the rate of 24% per annum from January 1997. In September 2000, the department condescended to grant the refund of Rs. 20 lakhs, which was in fact received by the appellant in December, 2000. Arguing for the department, it was contended that the amount deposited in terms of Section 35F took the character of duty or penalty and fell within the scope of Section 11B and that therefore no interest was payable thereon. Disagreeing with the contention, the Court pointed out that as far as that court was concerned the matter was no longer res Integra, following its decisions in Suvidha Ltd. v. Union of India, 1996 (2) TMI 136 - HIGH COURT OF JUDICATURE AT BOMBAYand in the Writ Petition filed by Philips (India) Ltd. v. Union of India (WP No. 7162 of 1999 in the Bombay High Court). Taking the view that there was no justification for the department to withhold the deposit after 24th January, 1997, when the Tribunal decided the case in favour of the appellant, especially in the light of the Supreme Court having held that the demands were hopelessly time barred, ordered payment of interest at 15% per annum from 24th January, 1997 to 15th September, 1999, when the refund was sanctioned. The Writ Petition was allowed in the above terms.

By virtue of this judgment the Department issued Circular No. 275/37/2000-CX.8A, dated 2.1.2002 framed the modalities for return of the pre-deposits.   In order to attain uniformity and to regulate such refunds it was clarified by the said circular that refund applications under Section 11B(1) of the Central Excise Act, 1944 or under Section 27(1) of the Customs Act, 1962 need not be insisted upon. A simple letter from the person who has made such deposit, requesting the return of the amount, along with an attested Xerox copy of the order-in-appeal or CEGAT order consequent to which the deposit made becomes returnable and an attested Xerox copy of the Challan in Form TR6 evidencing the payment of the amount of such deposit, addressed to the concerned Assistant/Deputy Commissioner of Central Excise or Customs, as the case may be, will suffice for the purpose. All pending refund applications already made under the relevant provisions of the Indirect Tax Enactments for return of such deposits and which are pending with the authorities will also be treated as simple letters asking for return of the deposits, and will be processed as such. Similarly, bank guarantees executed in lieu of cash deposits shall also be returned. Any deviation and resultant liability to interest on delayed refunds shall be viewed strictly.

Vide Circular No. 802/35/2004-CX, dated 8.12.2004 reiterated to follow the instructions in the circular abovementioned. It further reiterated that pre-deposit must be returned within 3 months from the date of order passed by the Appellate Tribunal/Court or other Final Authority unless there is a stay on the order of the Final Authority/CESTAT/Court, by a superior court.

In ‘V.P.I. (P) Limited V. Commissioner of Central Excise, Allahabad’ – 2013 (6) TMI 269 - ALLAHABAD HIGH COURT the appellant contended that he is entitled to receive interest from the date of deposit.   The High Court held that the submission of the appellant cannot be accepted.   The interest will be allowed immediately after three months period from passing the order.