2013 (11) TMI 512 - HC - Central Excise

Court orders 9% interest for delayed credit transfer in favor of Hindustan Coca-Cola

The court found in favor of Hindustan Coca-Cola Beverages Pvt. Ltd., directing the department to pay interest at a rate of 9% per annum for delayed ... Entitlement to interest on delayed transfer/refund despite absence of an express statutory provision - restitution and compensation for unlawful retention of amounts by the revenue - automatic transfer of unutilized MODVAT/CENVAT credit on merger under Rule 57F(20) and 57S(5) of the Central Excise Rules, 1994 - interest on interest as compensation - discretion to determine rate of interest where department acted illegallyEntitlement to interest on delayed transfer/refund despite absence of an express statutory provision - restitution and compensation for unlawful retention of amounts by the revenue - automatic transfer of unutilized MODVAT/CENVAT credit on merger under Rule 57F(20) and 57S(5) of the Central Excise Rules, 1994 - Petitioner is entitled to interest for wrongful and unlawful withholding of unutilized MODVAT/CENVAT credit despite absence of an express statutory provision for interest under the scheme. - HELD THAT: - The Court found that the department unlawfully withheld the transfer of unutilized MODVAT/CENVAT credit on merger and failed to initiate adjudicatory proceedings or issue show cause notices, compelling the petitioner to seek relief from the Court. The withholding was held to be unauthorised and not in accordance with Rule 57F(20) and 57S(5) under which the unutilized credit vests in the transferee on merger. Where the revenue has illegally retained amounts to which a party is rightfully entitled, equitable principles require restitution by way of interest as compensation for deprivation of use of funds. The Court relied on precedent recognising that, in cases of unjustified retention, interest may be awarded on general/compensatory principles (including reference to Sandvik Asia), and distinguished decisions where the question was bona fide or involved unsettled claims. Consequently, denial of interest on the ground that no specific statutory provision exists was rejected. [Paras 5, 6, 7, 8]Order of the Commissioner rejecting the claim for interest set aside; petitioner entitled to interest as compensation for unlawful withholding of credit.Discretion to determine rate of interest where department acted illegally - interest on interest as compensation - Rate and manner of payment of interest: department directed to compute and pay interest at 9% per annum and an additional 6% simple interest per annum on the interest so quantified. - HELD THAT: - Although various rates were referred to, the Court exercised its supervisory power to fix a just and reasonable rate of interest to compensate the petitioner for the period of unlawful deprivation. The Court directed the department to calculate the delayed-payment interest at 9% per annum and to pay simple interest at 6% per annum on the quantified interest, both payable within one month of receipt of the judgment. [Paras 9]Department to calculate and pay interest at 9% p.a. and 6% p.a. simple interest on the interest amount, to be paid within one month.Final Conclusion: Writ petition allowed; the Commissioner's order refusing interest is set aside and the department directed to compute and pay interest (9% p.a.) and 6% p.a. simple interest on that interest within one month; no order as to costs. Issues Involved:1. Delay in allowing the transfer of MODVAT/CENVAT credit.2. Entitlement to interest on delayed transfer of MODVAT/CENVAT credit.3. Absence of statutory provision for interest on MODVAT/CENVAT credit.4. Legal precedents supporting the claim for interest.5. Calculation and payment of interest.Issue-wise Detailed Analysis:1. Delay in Allowing the Transfer of MODVAT/CENVAT Credit:The petitioner, Hindustan Coca-Cola Beverages Pvt. Ltd., faced significant delays in the transfer of unutilized MODVAT/CENVAT credit following the merger with M/s. Britco Foods Company Ltd. Despite filing an application on 20.02.1998, the transfer of credit on raw materials was only allowed on 09.10.2002, and on capital goods on 09.04.2003. The delay was attributed to the inaction and technical objections raised by the Commissioner, necessitating multiple writ petitions and court interventions.2. Entitlement to Interest on Delayed Transfer of MODVAT/CENVAT Credit:The petitioner claimed interest for the period during which the MODVAT/CENVAT credit was wrongfully withheld. The Commissioner rejected this claim, stating there was no provision empowering the department to pay such interest. The petitioner argued that the wrongful deprivation of credit entitled them to interest based on principles of compensation and restitution.3. Absence of Statutory Provision for Interest on MODVAT/CENVAT Credit:The Commissioner's primary defense was the absence of a statutory provision for paying interest on delayed MODVAT/CENVAT credit transfers. However, the court found this argument unpersuasive. The court noted that the wrongful withholding of credit, which the petitioner was rightfully entitled to, necessitated compensation through interest, even in the absence of explicit statutory provisions.4. Legal Precedents Supporting the Claim for Interest:The petitioner relied on several legal precedents to support their claim for interest:- D.J. Works v. Deputy Commissioner of Income-tax (1992) 195 ITR 227 (Guj.): Recognized the principle of paying interest on amounts wrongfully retained by the department.- Sandvik Asia Ltd. v. Commissioner of Income-tax, Pune (2006) 280 ITR 643 (SC): Established that the assessee is entitled to compensation for wrongful withholding of money.- Surinder Singh vs. Union of India (2006) 204 ELT 534 (Del.): Affirmed the entitlement to interest on delayed refunds even without specific statutory provisions.- Commissioner of Central Excise vs. M/S. Rajalakshmi Textile Processors (P) Ltd. (2008) 221 ELT 38 (Mad.): Held that MODVAT credit is akin to excise duty and interest is payable on delayed refunds.- Indo-Nippon Chemicals Co. Ltd. vs. Union Of India (2002) 3 GLR 8: Clarified that claims for refund based on MODVAT credit are maintainable under the relevant provisions.- Hello Minerals Water (P) Ltd. vs. Union of India (2004) 174 ELT 422 (All.): Stated that interest is a normal accretion on capital and should be awarded for delayed payments.5. Calculation and Payment of Interest:The court directed the department to calculate and pay the interest at the rate of 9% per annum for the delayed payment within one month from the date of the judgment. Additionally, 6% simple interest per annum on the quantified interest amount was also to be paid within the same period.Conclusion:The court found the respondents unjustified in denying the petitioner's claim for interest. The wrongful withholding of MODVAT/CENVAT credit without lawful consideration or timely adjudication necessitated compensation through interest. The court set aside the Commissioner's order and directed the department to pay the calculated interest, emphasizing the principles of equity and restitution. The petition was allowed, and the rule was made absolute with no order as to costs.