2007 (3) TMI 456 - AT - Central Excise

Tribunal grants refund to appellant, orders interest payment under Section 11B

The Tribunal ruled in favor of the appellant in a case involving the deposit of duty during investigation. The appellant's refund claim of Rs. 50,000 was ... Interest on refund - Amount deposited during investigation ISSUES PRESENTED AND CONSIDERED 1. Whether an amount deposited with Revenue during investigation on a prima facie view of clandestine removal, and treated as 'duty' in adjudicatory and appellate proceedings, is to be treated as 'duty' for the purpose of claiming interest on refund under Section 11B. 2. Whether Revenue can characterize a sum earlier accepted and appropriated as 'duty' as a mere 'deposit' when refund is directed by a higher authority, thereby denying interest payable under statutory provisions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the deposited amount constitutes 'duty' for Section 11B interest purposes Legal framework: The entitlement to interest on refunds is governed by the statutory provision in Section 11B (interest on delayed refunds). The key legal question is whether the nature of the sum returned (i.e., whether it is 'duty' or merely a 'deposit') falls within the ambit of monies attracting Section 11B interest. Precedent Treatment: No specific appellate precedents or conflicting authorities were relied upon in the impugned judgment; the Tribunal's finding granting refund with interest was affirmed as a matter of statutory entitlement once the amount is treated as duty. Interpretation and reasoning: The Court examined the material and earlier orders and found that the Revenue had, throughout investigation and adjudication, treated the amount as duty: the sum was deposited by the taxpayer during investigation on the basis of an investigating officer's prima facie view of clandestine removal, and adjudicating authorities had at different stages treated it as an amount towards duty (including appropriation against demand). The Court reasoned that the subjective label later sought to be attached by Revenue ('deposit' rather than 'duty') cannot be allowed to defeat the statutory right to interest once the amount had been accepted and handled as duty in the record. The tribunal's view that voluntary payment deposited entitles refund with interest in accordance with law was endorsed. The Court emphasized that absent a justifiable reason to treat the sum as a mere deposit, funds placed with Revenue as duty must be regarded as duty for interest purposes. Ratio vs. Obiter: Ratio - where a sum has been deposited with Revenue in the course of investigation and consistently treated as duty in the administrative proceedings, it constitutes 'duty' for the purposes of Section 11B and attracts interest on refund. Obiter - none material beyond factual emphasis on the investigating officer's prima facie view. Conclusion: The deposited amount is to be treated as 'duty' and the successful claimant is entitled to interest on the refunded amount under Section 11B; the matter is remitted to Revenue to calculate interest payable. Issue 2 - Legitimacy of Revenue's post-facto characterization as 'deposit' to deny interest Legal framework: Principles of consistency in administrative action and protection of substantive statutory rights underpin the analysis; a change in characterization by Revenue cannot extinguish statutory remedies accrued by the taxpayer where the original treatment supports entitlement. Precedent Treatment: The Court noted earlier appellate observation where the Commissioner (Appeals) had referred to the sum as duty in some findings but had set aside original findings for lack of evidence; however, the ultimate tribunal order treated the payment as voluntarily made duty and granted refund with interest. No contrary binding precedent was applied to justify a retroactive reclassification. Interpretation and reasoning: The Court held that it would be untenable for Revenue to take a 'U-turn' after higher forums have accepted the payment as duty; such recharacterization would be arbitrary and would deprive the payor of statutory interest. The Court focused on the substance of the transaction (payment made during investigation as a consequence of a prima facie finding of clandestine clearance and consistently treated as duty by Revenue officials) rather than form or later labels. The reasoning rejects Revenue's post-facto labeling where no new factual basis justified reclassification. Ratio vs. Obiter: Ratio - Revenue cannot reclassify monies earlier treated and appropriated as duty into mere deposits to deny statutory interest; entitlement depends on substantive treatment and purpose of payment. Obiter - remarks on appropriateness of calculating interest in accordance with statutory formula as directed by the tribunal. Conclusion: The Court disallowed Revenue's contention that the refunded sum was only a 'deposit' and therefore not eligible for interest; it directed Revenue to compute and pay interest under Section 11B on the refunded amount. Cross-references and Practical Direction Where an amount is deposited during investigation on a prima facie view of clandestine removal and is treated by Revenue as duty (including appropriation against confirmed demand), such amount, if subsequently refunded, attracts interest under Section 11B; Revenue is directed to calculate interest payable in accordance with law.