Interest on refund claim linked to Cenvat reversal was limited until credit reversal, then payable on the full amount.

Interest on a sanctioned refund under Rule 173-L was not treated as an ordinary delayed refund claim because sanction was contingent on reversal of the related Cenvat credit. The general Section 11BB principle that interest accrues after three months from receipt of the refund application was acknowledged, but the refundable amount remained partly linked to the unpaid credit reversal until the reversal date. As a result, interest was not allowed on the entire refund from the original three-month period, nor denied altogether up to the reversal date; it was confined to the refunded amount as it stood before reversal and then became payable on the full refund only from the date the credit was reversed.

---

---

Issues: Whether interest on the sanctioned refund under Rule 173-L was payable from the expiry of three months from the date of the refund applications, or only from the date on which the assessee reversed the Cenvat credit required to be reversed before sanction of refund.

Analysis: The refund entitlement was not in dispute, but the refund was subject to reversal of the Cenvat credit relatable to the returned goods. The general principle under Section 11BB is that interest on delayed refund becomes payable after expiry of three months from the date of receipt of the refund application. However, the factual position here was different from an ordinary refund claim because part of the amount remained linked to the unpaid credit reversal amount until 16-8-2005. In these circumstances, granting interest for the whole refund amount from the original three-month period was held to be unjustified, while denying interest altogether till 16-8-2005 was also not justified.

Conclusion: Interest was held payable only on Rs. 40,84,674/- up to 15-8-2005, and on the full refund amount of Rs. 41,98,105/- from 16-8-2005 until 13-3-2006.

---