2011 (8) TMI 520 - HC - Central Excise

High Court grants appeal for interest on pre-deposit refund, directs Respondent to comply with CBEC circular.

The High Court allowed the appeal, affirming the appellant's entitlement to interest on the refunded pre-deposit amount. The Court directed the Respondent ... Refund calim - Interest on refund - the Tribunal has passed an order of refund but refused to enter into the question of grant of interest payable to the appellant. - Held that:- the Hon'ble Supreme Court in the case of Commissioner of Central Excise vs. ITC Limited, reported in (2004 -TMI - 47165 - SUPREME COURT OF INDIA), interest was payable for the period commencing from three months after the final disposal of the matter till the date of refund and thus, in this case interest was payable from May 25, 2005 - It appears that the Central Board of Excise and Customs, pursuant to the aforesaid decision of the Supreme Court, has already issued a circular bearing No.802/35/2004-CX dated December 8, 2004 specifying the rate of interest in this regard - Decided in favour of assessee. Issues Involved:1. Classification of 'grey tyre cord fabrics'.2. Demand of duty and imposition of penalty.3. Refund of the pre-deposit amount.4. Applicability of the doctrine of unjust enrichment.5. Entitlement to interest on the refunded amount.Issue-wise Detailed Analysis:1. Classification of 'grey tyre cord fabrics':The appellant classified 'grey tyre cord fabrics' under Heading CH 59.02 of CETA 1985, which was initially approved by the department. However, a show-cause notice issued by the Collector of Central Excise proposed a reclassification to 59.09, leading to a significant duty demand. The Commissioner of Central Excise upheld this reclassification and confirmed the duty demand along with a penalty. The appellant's subsequent appeals resulted in remands and re-affirmations of the reclassification by the Commissioner, which were ultimately upheld by the Tribunal.2. Demand of duty and imposition of penalty:The initial duty demand of Rs.17,88,76,842/- included Basic Excise Duty and Special Duty, along with an equivalent penalty. After various appeals and remands, the Tribunal upheld the duty demand but reduced the penalty to Rs.9,00,000/-. The appellant's further appeal to the Supreme Court led to the final decision in favor of the appellant, which nullified the duty demand and penalty.3. Refund of the pre-deposit amount:Following the Supreme Court's decision, the appellant sought a refund of Rs.14.98 crore paid under Section 35F of the Central Excise Act during the pendency of the appeal. The Deputy Commissioner initially sanctioned the refund but credited it to the Consumer Welfare Fund, invoking the doctrine of unjust enrichment. The Commissioner (Appeals) and the Tribunal upheld this decision, except for Rs.1 crore, which was refunded to the appellant.4. Applicability of the doctrine of unjust enrichment:The appellant argued that the doctrine of unjust enrichment was inapplicable as the pre-deposit was made long after the clearance of goods. The appellant provided Chartered Accountant certificates and financial records to prove that the incidence of duty was not passed on to customers. Despite these submissions, the authorities directed the credit of the refund to the Consumer Welfare Fund, which was upheld by the Tribunal.5. Entitlement to interest on the refunded amount:The core issue before the High Court was whether the appellant was entitled to interest on the refunded amount. The High Court referred to the Supreme Court's decision in Commissioner of Central Excise vs. ITC Limited, which mandated interest from three months after the final disposal of the matter until the date of refund. The High Court noted that the appellant's Rs.14.98 crore was retained by the Revenue even after the Supreme Court's decision in February 2005. Consequently, the Tribunal erred in not addressing the interest issue. The High Court set aside the Tribunal's order and directed the Respondent to pay interest as per the CBEC circular dated December 8, 2004, within two months.Conclusion:The High Court allowed the appeal, affirming the appellant's entitlement to interest on the refunded pre-deposit amount, and directed the Respondent to comply with the payment of interest as specified in the relevant CBEC circular. The formulated question was answered in the affirmative and against the Revenue, with no order as to costs.