2011 (8) TMI 796 - HC - Central Excise

Bank guarantee encashment post-duty determination qualifies for interest refund under Central Excise Act.

PACE MARKETING SPECIALITIES Versus COMMISSIONER OF CENTRAL EXCISE

The High Court held that the encashment of the bank guarantee after the duty determination constituted duty paid, making the refunded amount eligible for ... Interest of bank guarantee encashed earlier - Held that:- in this case initially the bank guarantee so furnished, was not a duty deposit in advance, but a security - After the appeal against assessment was allowed by the appellate tribunal, the amount which was directed to be refunded and which was so refunded to the appellant, would attract interest under Section 11BB after a period of three months from the date of receipt of the application under sub-section 1 of Section 11B of the Act - Decided in favor of the assessee by way of direction that on the refunded amount, the appellant will be entitled to interest @ 12% p.m., after three months from the date of receipt of the application Issues:- Applicability of Section 11BB of the Central Excise Act for interest payment on refunded amount initially treated as pre-deposit with a bank guarantee.Analysis:1. The case involved a Central Excise Appeal under Section 35-G of the Central Excise Act, 1944, concerning the applicability of Section 11BB for interest payment on a refunded amount of Rs. 42.50 lacs, initially treated as a pre-deposit with a bank guarantee. The duty was imposed, the bank guarantee was encashed, and later the duty was knocked off by the Income Tax Appellate Tribunal.2. The appellant argued citing a Supreme Court judgment that pre-deposits made as a pre-condition for appeal hearings should be refundable to the assessee with interest upon being successful. The Tribunal had rejected the prayer for interest on the encashed bank guarantee, stating that Section 11B would not apply as the bank guarantee was considered security and not a duty deposit in advance.3. The High Court analyzed the facts and determined that the encashment of the bank guarantee after the duty was determined amounted to duty paid, as it lost its character of security. Upon the appeal being allowed by the appellate tribunal, the refunded amount attracted interest under Section 11BB after three months from the date of the application under Section 11B(1) of the Act.4. In the absence of a notification as in a previous Commissioner of Central Excise case, the interest was quantified at 12% per annum. The High Court directed that the appellant would be entitled to interest at 12% per annum on the refunded amount after three months from the date of the application under Section 11B(1), subject to the conditions specified under Section 11BB of the Central Excise Act, 1944.