2004 (2) TMI 78 - HC - Central Excise

Order to Pay Interest on Excise Duty Refund from 3 Months After Section 11BB Start Date Until Actual Payment.

The HC directed the respondents to pay interest on the refund of excess Excise Duty from three months after Section 11BB's commencement date (26-5-1995) ... Interest on delayed refunds - Claim of refund of duty - Proviso to Section 11BB - application to pending claims - Relevant date for refund claims - Liability to pay interest linked to date of application - Consumer Welfare Fund versus payment to applicantInterest on delayed refunds - Liability to pay interest linked to date of application - Relevant date for refund claims - Entitlement to interest under the statutory scheme where refund application was filed earlier but payment was delayed - HELD THAT: - The Court held that Sections 11B and 11BB must be read together and that the liability to pay interest on delayed refunds is triggered by non-payment within three months from the date of receipt of the application made under Section 11B(1). The statutory right to interest is not dependent on the date of final adjudication under Section 11B(2); rather, where an application for refund had been validly filed and the refund remained unpaid beyond three months, interest became payable from the expiry of those three months until actual payment, at rates notified by the Board. The Court applied this principle to the facts where the petitioner had filed applications on 3-1-1989 and 21-4-1989 and where proceedings were pending when Section 11BB was inserted, concluding that the statutory trigger for interest is the application date and the prescribed three-month period thereafter. [Paras 21, 23, 33, 38, 39]Petitioner entitled to interest on the refund from the date on which liability to pay interest arose under Section 11BB, i.e., from expiry of three months from the date of the application, until actual payment, at rates notified by the Board.Proviso to Section 11BB - application to pending claims - Consumer Welfare Fund versus payment to applicant - Effect of insertion of Section 11BB on refund applications pending on 26-5-1995 and applicability of interest where question arose whether excess duty should be transferred to Consumer Welfare Fund - HELD THAT: - The Court explained that prior to insertion of Section 11BB there was no statutory entitlement to interest for belated refunds enforceable by mandamus. However, the proviso to Section 11BB brings within its scope those refund applications pending when the provision came into force. Where an application was pending on insertion and the refund had not been paid within three months from the operative date, interest becomes payable from the expiry of that three-month period. The Court further held that the departmental process of deciding whether the amount would be transferred to the Consumer Welfare Fund did not absolve the department from liability to pay interest if ultimately the amount was found payable to the applicant under the proviso to Section 11B(2). Applying these principles, the Court directed interest to be paid from the date the statutory provision became operative for pending claims. [Paras 28, 34, 40, 41, 42]For applications pending when Section 11BB came into force, petitioner entitled to interest under the proviso to Section 11BB from the statutory starting date (after expiry of three months from insertion) until actual payment; departmental consideration of transfer to Consumer Welfare Fund does not defeat that statutory entitlement where final adjudication awards refund to the applicant.Final Conclusion: Writ petition allowed; respondents directed to pay interest on the refund ordered under Section 11B(2) with effect from the expiry of three months from the date Section 11BB came into force (i.e., consequential to 26-5-1995) until actual payment, computed at the rates notified by the Board, to be complied with within two months. Issues Involved:1. Claim of interest on the refund of excess Excise Duty.2. Application of Section 11B and Section 11BB of the Central Excise Act, 1944.3. Determination of the relevant date for the commencement of interest liability.4. Constitutional validity of Section 11B of the Central Excise Act, 1944.Summary:1. Claim of Interest on Refund of Excess Excise Duty:The petitioner sought interest on the refund of Excise Duty paid in excess, which was ultimately found to be refundable and not liable to be transferred to the Consumer Welfare Fund u/s 11B(2) of the Central Excise Act, 1944. The initial applications for refund were made on 3-1-1989 and 21-4-1989, claiming entitlement to a rebate as a 'new industrial undertaking' under Notification No. 36/87. Despite favorable decisions from the Commissioner (Appeals) and CEGAT, the refund was delayed, leading to the current petition for interest on the delayed refund.2. Application of Section 11B and Section 11BB of the Central Excise Act, 1944:The petitioner argued that u/s 11B read with Section 11BB, the refund application was made within one year of the date of payment of Duty, and since the refund was not made within three months, interest was due from the expiry of three months from the date of application. The respondents contended that the refund became due only after the CEGAT's order, and interest was payable only for the delay beyond three months from that date.3. Determination of the Relevant Date for Commencement of Interest Liability:The court held that the relevant date for determining interest liability is the date of the application for refund, not the date of the final adjudication. The liability to pay interest arises if the refund is not made within three months from the date of the application, as per Section 11BB. The court emphasized that the statutory provisions of Section 11BB, inserted by the Finance Act of 1995, provide a clear basis for interest on delayed refunds.4. Constitutional Validity of Section 11B of the Central Excise Act, 1944:The challenge to the constitutional validity of Section 11B was given up during the hearing. The court noted that the insertion of Section 11BB has made a vital difference by providing a statutory basis for imposing liability to pay interest on delayed refunds.Conclusion:The court directed the respondents to pay interest on the refund amount from the expiry of three months from the date Section 11BB came into force (26-5-1995) until the date of actual payment. The interest rate shall be as notified by the Board from time to time. The order is to be complied with within two months from the date of receipt of the writ or submission of a certified copy of the order. There shall be no order as to costs.