2025 (5) TMI 1992 - AT - Central Excise

Applicability of principle of restitution - Amount of National Calamity Contingency Duty (NCCD) paid by the appellant by utilizing Cenvat credit - contravention of the amended proviso to Rule 3(4) of the Cenvat Credit Rules 2004 constitutes a duty or merely a deposit with the Government - time limitation - HELD THAT - The Appellant had wrongly deposited the amount by way of Cenvat credit long before the dispute arose thus the amount is construed as a Deposit and since it has been retained by the Department for a long period thus the Appellant is entitled to claim interest from the date of deposit itself. The principle of restitution is crucial in this case. Restitution ensures that when an erroneous or unjust act results in one party benefiting at the expense of another the benefiting party must restore what was wrongfully retained. In this case since the Government retained the Rs.38, 72, 24, 971/- wrongfully it must compensate the Appellant by granting interest for the period during which the money remained with the Government. Although the Appellate Authority has accepted that Doctrine of Restitution is applicable in the present case but has failed to actually apply the doctrine in its true essence. The Department s prolonged retention of the amount deprived the Appellant of its rightful funds and the Appellant should be compensated for this deprivation. The interest should be payable to the Appellant for the entire period during which the refund amount remained deposited with the Government Exchequer which is from the date of making the deposit till the date of refund of such deposit - As the refund amount remained with the Government for a prolonged period the failure to grant interest for the entire duration is unjustified and legally unsound. Conclusion - The amount paid by the appellant using Cenvat credit for NCCD was a deposit not duty; that refund claims for such deposits are not barred by limitation under Section 11B; and that the appellant is entitled to interest on the entire refund amount from the date of erroneous deposit till the date of refund. The interest granted only on 7.5% of the amount under Section 35F was held to be erroneous and set aside. The principles of restitution and prevention of unjust enrichment underpin these conclusions. The impugned order is set aside - appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the amount of National Calamity Contingency Duty (NCCD) paid by the appellant by utilizing Cenvat credit, in contravention of the amended proviso to Rule 3(4) of the Cenvat Credit Rules, 2004, constitutes a "duty" or merely a "deposit" with the Government.

2. Whether the refund claim filed by the appellant for the amount erroneously paid is barred by limitation under Section 11B of the Central Excise Act, 1944.

3. Whether the appellant is entitled to interest on the entire refund amount from the date of deposit till the date of refund, or only on the portion treated as pre-deposit under Section 35F of the Central Excise Act, 1944.

4. The applicability and scope of the doctrine of restitution in cases of erroneous payment of duty or deposit to the Government.

Issue-wise detailed analysis:

Issue 1: Characterization of the amount paid using Cenvat credit for NCCD - Duty or Deposit?

The legal framework involves the proviso to Rule 3(4) of the Cenvat Credit Rules, 2004, which was amended to prohibit utilization of Cenvat credit of any duty other than NCCD for payment of NCCD. The appellant inadvertently utilized Cenvat credit of basic excise duty and service tax for payment of NCCD, which was contrary to the amended rule.

The Department issued a Show Cause Notice seeking recovery of the amount paid erroneously. The appellant contended that the amount paid was not a legitimate duty payment but a mistaken deposit. The Commissioner (Appeals) and subsequently the Tribunal recognized that the amount should be construed as a "deposit" and not "duty."

The Tribunal referred to settled legal principles and precedents where excess payment of duty by mistake qualifies as a deposit rather than duty. The Department cannot retain amounts not legally due. The appellant's payment was held to be a deposit, as the payment was made by mistake and later paid again in cash, resulting in double payment.

The Tribunal emphasized that the doctrine of restitution applies, requiring the Government to restore the amount wrongfully retained.

Issue 2: Limitation under Section 11B of the Central Excise Act, 1944 for refund claim

Section 11B prescribes limitation for refund claims of duty. The Department rejected the refund claim as time-barred under this provision. However, the Commissioner (Appeals) and the Tribunal held that Section 11B is not applicable in this case because the amount was never "duty" but a deposit. Since the amount was a deposit, the limitation provisions for refund of duty do not apply.

This interpretation is consistent with the principle that limitation for refund claims applies only when the amount constitutes duty. The Tribunal relied on a catena of cases establishing that where duty is paid twice by mistake, the excess payment is a deposit and not subject to Section 11B limitation.

Issue 3: Entitlement to interest on refund - entire amount or only pre-deposit portion under Section 35F

Section 35F mandates a pre-deposit of 7.5% of the duty in appeals before the Tribunal or Commissioner (Appeals), and Section 35FF provides for interest on such pre-deposit. The Adjudicating Authority granted refund of the entire amount but allowed interest only on 7.5% of the refund amount, treating it as pre-deposit under Section 35F.

The Commissioner (Appeals) upheld this view but the appellant challenged it, arguing that since the amount was a deposit and not a pre-deposit under Section 35F, interest should be granted on the entire amount from the date of deposit.

The Tribunal analyzed the nature of the amount and the statutory provisions. It held that since the amount was a deposit made long before the appeal and not a pre-deposit under Section 35F, the appellant was entitled to interest on the entire amount from the date of deposit till refund.

The Tribunal relied on the principle that the Government cannot retain money not due to it and must compensate for the time value of money through interest. It referred to several High Court and Tribunal decisions holding that interest is payable on amounts refunded even in the absence of explicit statutory provisions, to prevent unjust enrichment of the Government.

Issue 4: Application of the doctrine of restitution

The doctrine of restitution mandates that a party who has been unjustly enriched at the expense of another must restore the benefit. The Tribunal observed that the Government's retention of the erroneously paid amount for a prolonged period amounted to unjust enrichment.

The appellant's payment was a bona fide mistake, and the Government held the amount without lawful entitlement. Therefore, the appellant was entitled to restitution in the form of refund with interest to compensate for the deprivation of funds.

The Tribunal noted that although the Commissioner (Appeals) acknowledged the doctrine of restitution, it failed to apply it fully by limiting interest to only 7.5% of the refund amount. The Tribunal corrected this by granting interest on the entire amount.

Competing arguments:

The Department contended that the refund was time-barred and that interest should be limited to the portion treated as pre-deposit under Section 35F. The appellant argued that the amount was never duty, limitation did not apply, and interest was due on the entire amount as it was a deposit held by the Government.

The Tribunal sided with the appellant on all points, finding the Department's arguments unsustainable in law and on facts.

Significant holdings:

"Where the duty is paid twice by mistake of law or on facts, then the excess paid duty (whether first time or the second time) qualifies as a mere deposit and not duty and the provisions of Section 11B do not apply for the refund thereof."

"Section 35F of the Central Excise Act, 1944 mandates that the Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal unless the appellant has deposited seven and a half percent of the duty. However, since in the present case no duty was involved rather it was a case of refund, therefore, appellant was not required to deposit such mandated amount under Section 35F."

"The doctrine of restitution is applicable and the Department's prolonged retention of the amount deprived the appellant of its rightful funds, entitling the appellant to interest from the date of deposit till the date of refund."

"The Government is liable to pay interest on amounts refunded, even if there is no explicit provision for interest under the law, to compensate for the retention of money legally owed to the assessee."

"The failure to grant interest for the entire duration is unjustified and legally unsound. The appeal filed by the appellant is allowed with consequential relief."

The Tribunal conclusively determined that the amount paid by the appellant using Cenvat credit for NCCD was a deposit, not duty; that refund claims for such deposits are not barred by limitation under Section 11B; and that the appellant is entitled to interest on the entire refund amount from the date of erroneous deposit till the date of refund. The interest granted only on 7.5% of the amount under Section 35F was held to be erroneous and set aside. The principles of restitution and prevention of unjust enrichment underpin these conclusions.