Assessee entitled to interest on delayed excise refund beyond 90 days under Section 11BB; rejection quashed

HC allowed the writ petition, holding that the assessee is entitled to interest under Section 11BB of the Central Excise Act, 1944 on delayed refund beyond 90 days from the date of application. The communication rejecting interest was quashed as erroneous, since no adjudication proceedings had been initiated to justify withholding interest. HC found no legal impediment to grant statutory interest and directed the revenue authorities to compute and pay interest on the refunded amounts, after verifying the correctness of the assessee's calculations in the refund claim, within a stipulated time and strictly in accordance with law.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the petitioner is entitled to interest on delayed refund of Service Tax under Section 11BB of the Central Excise Act, 1944.

1.2 Whether the communication stating that interest on refund would be determined only in adjudication proceedings, when no such proceedings have been initiated within the permissible period under Section 73 of the Finance Act, 1994, is legally sustainable.

1.3 Whether a writ of mandamus can be issued directing the revenue authorities to grant interest on delayed refund after verification of calculations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Entitlement to interest on delayed refund under Section 11BB of the Central Excise Act, 1944

Legal framework

2.1 The Court records the petitioner's claim that under Section 11BB of the Central Excise Act, 1944, interest becomes payable if the sanctioned refund is not paid within 90 days from the date of submission of the refund application.

Interpretation and reasoning

2.2 The Court notes the application dated 30.09.2021 for refund of interest on delayed receipt of Service Tax refund for the period April 2011 to June 2017 and the particulars of refund orders and payments in Annexure-C.

2.3 It is undisputed that the principal refund has already been granted to the petitioner; the dispute only concerns interest on the delayed refund.

2.4 On perusal of the record, including the details of refund and dates of payment, the Court holds that the petitioner would be entitled to interest for delayed refund in terms of Section 11BB.

Conclusions

2.5 The Court concludes that the petitioner is entitled to interest on the delayed refund amounts, calculable in accordance with Section 11BB of the Central Excise Act, 1944, from expiry of 90 days from the refund application until the date of actual refund.

Issue 2: Validity of the communication deferring consideration of interest to adjudication proceedings

Legal framework

2.6 The Court takes note of the petitioner's reliance on Section 73 of the Finance Act, 1994, regarding the time limit for initiation of adjudication proceedings for the relevant tax period (April 2011 to June 2017).

Interpretation and reasoning

2.7 The impugned communication dated 06.01.2022 states that the question of sanctioning interest on the refund will be dealt with in adjudication proceedings and that grievances must be pursued by way of appeal.

2.8 The Court accepts the submission that, for the period April 2011 to June 2017, adjudication proceedings under Section 73 should have been initiated within one year, or at the most within the extended period of four years; that period had undoubtedly expired by the time the refund interest application was filed.

2.9 The Court finds from the record that no adjudication proceedings have been initiated against the petitioner even as of the date of decision.

2.10 In this background, the Court holds that relying on possible adjudication to deny or defer interest on delayed refund is erroneous and unsustainable, as there is no pending or existing adjudication that could affect the petitioner's statutory right to interest.

Conclusions

2.11 The communication dated 06.01.2022 refusing to grant interest on the ground that the issue will be considered in adjudication proceedings is held to be clearly erroneous and is quashed.

Issue 3: Appropriateness of writ of mandamus directing grant of interest after verification

Interpretation and reasoning

2.12 Having held that there is no legal impediment to the grant of interest and that the reasons in the impugned communication are untenable, the Court considers the appropriate relief.

2.13 The Court notes that only the computation/quantum of interest requires verification by the respondents with reference to the details furnished by the petitioner in Annexure-C dated 23.02.2022.

2.14 To balance the petitioner's statutory entitlement with the authority's power to verify calculations, the Court decides to set aside the impugned communication and direct the respondents to grant and pay interest after due verification, within a specific time frame.

Conclusions

2.15 A writ of mandamus is issued allowing the petition, quashing the communication dated 06.01.2022, and directing the respondents to grant and pay applicable interest on delayed refund as claimed, after due verification and in accordance with law, within two months.

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