2008 (9) TMI 12 - SC - Central Excise

Under Section 11BB, delayed refund interest payable only after three months; equitable interest requires prior written demand

SC held that under Section 11BB interest on delayed refund is payable only after three months from the refund application; equitable interest requires a ... Interest on delayed refund - Interpretation of statutes - scope of Section 11 BB - HELD THAT:- Learned counsel for the appellant submitted that after introduction of Section 11 BB the position relating to grant of interest has got crystalised and the grant of relief from the first date on which the application for refund was rejected cannot be sustained. It is submitted that Section 11BB makes the position clear that only after three months from the date of application interest becomes payable. Following the case in Clariant International Ltd. v. Securities and Exchange Board of India [2004 (8) TMI 390 - SUPREME COURT], held that Interest cannot be awarded by way of damages except in cases where money due is wrongfully withheld and there are equitable grounds therefor, for which a written demand is mandatory. Therefore, if the claim of interest is on equitable ground, a written demand therefor is imperative. Admittedly no such written demand has been made. In terms of Section 11BB (1), the respondent- assessee is entitled to interest from 12th April, 2004 to 26th August, 2004. The quantum shall be worked out and the amount shall be paid within a period of four weeks. The order of the High Court is accordingly modified and the appeal is allowed to the aforesaid extend. Issues: (i) Whether interest on a refund claim is payable retrospectively from the first date of initial rejection (prior to insertion of Section 11BB) or only within the period and from the date prescribed by Section 11BB of the Central Excise Act, 1944; (ii) Whether equitable interest can be awarded in the absence of a written demand and independently of statutory entitlement.Issue (i): Whether interest on the refund is payable from the date of the first rejection of the refund claim or only as provided under Section 11BB of the Central Excise Act, 1944.Analysis: The statutory scheme after insertion of Section 11BB delineates the dates and period for payment of interest on refunds. Earlier rejections prior to the statutory provision do not automatically create a right to interest beyond what Section 11BB prescribes. Precedent regarding statutory interest emphasises that interest is available only where the statute provides for it and within the temporal limits set by the statute.Conclusion: In favour of Revenue.Issue (ii): Whether equitable interest is payable on the refund claim despite absence of a written demand and irrespective of the statutory provision.Analysis: Equitable interest can be awarded only on established equitable grounds and, where such relief is sought, a written demand is required. In the absence of a written demand and absent an independent statutory or contractual basis, equitable interest cannot be granted to supplant the statutory scheme for interest.Conclusion: In favour of Revenue.Final Conclusion: The appeal is allowed to the extent of restricting interest to the period and dates prescribed by Section 11BB of the Central Excise Act, 1944; equitable interest is not awarded due to lack of a written demand.Ratio Decidendi: Where a statute prescribes the entitlement and temporal scope of interest on refunds, that statutory scheme governs and equitable interest cannot be awarded in substitution without a written demand and an independent equitable basis.