2023 (8) TMI 183 - AT - Central Excise

Tribunal grants interest on Cenvat Credit refund, despite revenue's objection.

C.C.E. & S.T. -Ahmedabad-iii Versus Raajratna Metal Industries Ltd

The Tribunal held that the respondent is entitled to interest on the refund sanctioned by the department under Rule 5 of Cenvat Credit Rules, 2004. It was ... Interest on the refund sanctioned by the department - provisions of the Central Excise Act namely Sections 11B and 11BB apply to the refund of Cenvat Credit or not - whether the respondent is entitle for interest on refund already sanctioned and if yes, from which date? HELD THAT:- The refund which was filed on 01.06.2004 and 25.06.2004 for the period April-03 to September-03 was kept pending by the department, on the dispute that since the respondent’s activity i.e. drawing of wire was held does not amount to manufacture, the respondent was not entitle for the Cenvat Credit and consequential refund of the said Cenvat Credit under Rule 5 of Cenvat Credit Rules, 2004 was also under dispute. The eligibility of Cenvat Credit in the above facts was extended by retrospective amendment of Rule 16 of Central Excise Rules, 2002. Whereby, the assessee (wire drawing units) becomes entitled for the Cenvat Credit on 13.07.2006. The revenue’s contention that the Rule 5 refund is not eligible for interest as the provisions of Section 11B and 11BB are not applicable, for such refund under Rule 5 is no longer under dispute in the light of the jurisdictional High Court of Gujarat judgment in the case of COMMISSIONER OF CENTRAL EXCISE VERSUS RELIANCE INDUSTRIES LTD. [2010 (10) TMI 190 - GUJARAT HIGH COURT]. Therefore, there is no doubt that the respondent are legally entitle for the interest under Section 11BB of Central Excise Act, 1984. Period for which the respondent should be granted interest of refund - HELD THAT:- Even though the respondent had filed the refund claim on 01.06.2004 and 25.06.2004 but at that time there was no clear provision for allowing the Cenvat Credit on the inputs to the Wire drawing units therefore, there was no reason for revenue to grant the refund under Rule 5 till the retrospective amendment in Rule 16 was brought i.e. on 13.07.2006. However, after the amendment dated 13.07.2006 in Rule 16 the respondent became eligible for refund of accumulated Cenvat credit under Rule 5 of Cenvat Credit Rules, 2004. Therefore, the revenue was supposed to sanction the refund within three months from the date of retrospective amendment i.e. from 13.07.2006 however, the refund was sanctioned on 14.06.2012. Therefore, there is a delay in sanction of the refund after three months from the date of retrospective amendment dated 13.07.2006. The respondent is entitled for the interest only for the period i.e. from the date of three months of 13.07.2006 till the sanction of refund i.e. 14.06.2012 - Sanctioning Authority shall recalculated the interest accordingly and grant the same to the respondent. Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether Sections 11B and 11BB of the Central Excise Act apply to refunds of accumulated Cenvat credit claimed under Rule 5 of the Cenvat Credit Rules, 2004. 2. If Sections 11B and 11BB apply, whether interest on a refund of accumulated Cenvat credit is payable, and from which date the liability to pay interest arises where entitlement crystallised by a retrospective amendment. 3. Whether pendency of litigation (continued challenge by revenue) precludes accrual of interest once entitlement is fixed by a retrospective statutory amendment. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Sections 11B and 11BB to refunds of accumulated Cenvat credit under Rule 5 Legal framework: Sections 11B and 11BB provide for interest on delayed refunds of duty under the Central Excise Act; Rule 5 of the Cenvat Credit Rules 2004 permits refund of unutilised Cenvat credit under specified conditions. Precedent treatment: Jurisdictional High Court held that Sections 11B and 11BB apply to refunds of accumulated Cenvat credit under Rule 5. That holding was affirmed by the Supreme Court on appeal; other High Courts and tribunals have followed the same principle. Interpretation and reasoning: The Tribunal accepts the settled judicial position that statutory provisions governing interest on refunds are not confined strictly to refunds described as 'duty' refunds but extend to refunds of accumulated Cenvat credit under Rule 5. The Tribunal reasons that the remedial purpose of Sections 11B/11BB-to compensate for deprivation resulting from delayed refunds-covers Rule 5 refunds when entitlement is established. Ratio vs. Obiter: The acceptance that Sections 11B/11BB apply to Rule 5 refunds is treated as ratio, being a binding application of higher court decisions relied upon by the Tribunal. Conclusion: Sections 11B and 11BB are applicable to refunds of accumulated Cenvat credit under Rule 5; accordingly, interest is payable where refund is delayed. Issue 2 - Date from which interest on refund of accumulated Cenvat credit is payable where entitlement crystallised by retrospective amendment Legal framework: Section 11BB prescribes interest liability where a refund, once sanctioned, is delayed beyond a statutory period (three months) from the date of application or other event creating entitlement; Rule 16 (retrospective amendment) gave retrospective eligibility to certain units. Precedent treatment: Prior decisions establish that when entitlement is fixed retrospectively by statute or rule, interest liability may run from the date when the right matured under the amended provision or from the date provided by law for payment following maturity. Interpretation and reasoning: The Tribunal distinguishes between the date of original refund claim and the date on which legal entitlement arose. Where a retrospective amendment (here, amendment to Rule 16) conferred eligibility as of an earlier period, the Tribunal holds that interest accrues only after the entitlement matured under law. The Tribunal reasoned that at the time of original filing (2004) there was no clear statutory entitlement for the category in question; entitlement crystallised on the retrospective amendment date (13.07.2006). Once entitlement existed, the statutory timeline for payment (three months) became applicable; delay beyond that period attracts interest under Section 11BB. Thus, interest is payable from three months after 13.07.2006 until actual sanction of refund (14.06.2012), not from the original filing dates in 2004. Ratio vs. Obiter: The holding that interest runs from three months after the date the retrospective amendment made the claimant eligible is ratio for cases where entitlement arises by retrospective statutory amendment and where no prior clear statutory entitlement existed. Conclusion: Interest on the sanctioned refund is payable for the period beginning three months after 13.07.2006 (date of retrospective amendment) until sanction on 14.06.2012; earlier filing dates do not advance the start of interest where entitlement did not legally exist then. Issue 3 - Effect of pendency of litigation on accrual of interest once entitlement is fixed by retrospective amendment Legal framework: Statutory interest provisions apply once refund is due and payable; there is no statutory provision exempting the revenue from interest liability on account of pending litigation once a legislative change renders the claim mature. Precedent treatment: Authorities relied upon show that continuous litigation does not indefinitely suspend the revenue's liability to pay interest where a legislative amendment or judicial pronouncement conclusively establishes entitlement. Interpretation and reasoning: The Tribunal finds that once the retrospective amendment took effect (13.07.2006), the claim became legally mature irrespective of earlier or pending proceedings; thus pendency of other proceedings (e.g., appeals) cannot serve as a valid basis to deny interest. The Tribunal reasons that the revenue could and should have sanctioned the refund within three months of the amendment; continuing litigation thereafter did not absolve it from paying interest for the delayed period. Ratio vs. Obiter: The conclusion that pendency of litigation does not negate interest liability where entitlement is fixed by a retrospective amendment is ratio for similar factual circumstances; it follows statutory intent to prevent unjust deprivation without compensation. Conclusion: Continuous litigation did not relieve the revenue of its obligation to sanction the refund and pay interest from three months after the retrospective amendment date; denial of interest on that ground is not tenable. Operational Direction and Remedy The Tribunal modifies the impugned order to direct recalculation of interest for the period from three months after 13.07.2006 until 14.06.2012 and directs the sanctioning authority to compute and grant interest accordingly. This direction is consequential to the findings on Issues 1-3.