2013 (11) TMI 512 - HC - Central Excise

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

HINDUSTAN COCA-COLA BEVERAGES PRIVATE LTD. Versus UNION OF INDIA & 1

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 ... Claim of Interest for delay in allowing the transfer of respective MODVAT/CENVAT credit - On merger, the unutilized credit lying with the amalgamating company gets transferred to the amalgamated company automatically by virtue of Rule 57F(20) and 57S(5) of the Central Excise Rules, 1994 – Held that:- The department initially, even refused to grant the transfer of credit raising some technical objections. It was only at the intervention of this Court that the department, ultimately thought it appropriate to grant the transfer of the amount of unutilized MODVAT/CENVAT credit to the petitioner which the Respondent had unlawfully withheld. While doing so, however, no order was made as to interest. A further application made for grant of interest for delayed payment of MODVAT/CENVAT credit was rejected by the respondents. It is really surprisingly that the logic was that there was no statutory provision enabling the department to pay such interest to the petitioner. The contention to the effect that no interest is payable because there is no provision of interest under the scheme of the Act is also thoroughly misconceived and misplaced. When the Department acts illegally and not as per the scheme of the Act, the interest on such refund can never be provided for under the Scheme of the Act. If the authorities act as per the law, the question of granting interest on refund can be appreciated and considered as per the scheme of the Act. Contention to the effect that no interest is payable because there is no provision of interest under the scheme of the Act is also thoroughly misconceived and misplaced - Interest on refund is automatic and has to be granted on commercial principles – Reliance has been placed on the judgment of Apex court in the case of Sandvik Asia Ltd. v. Commissioner of Income-tax [2006 (1) TMI 55 - SUPREME Court], wherein the Hon’ble Apex Court even while finding that there was no statutory provision to pay interest on delayed payment of interest, held the assessee entitled to the same on general principles and found that the assessee would be entitled to be compensated by way of interest on interest – Decided in favor of Assessee. 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.