CESTAT denies refund of interest paid on reversed credit under retrospective Rule 6 amendment but allows interest on excess credit

CESTAT Bangalore rejected appellant's claim for refund of interest paid on proportionate credit reversed under retrospective amendment to Rule 6 of CCR 2002/2004. The tribunal held that once interest was paid to comply with Section 72 of Finance Act 2010's retrospective amendment requirements, no refund was permissible as the statutory provision mandated interest payment without considering credit utilization. However, CESTAT allowed interest on excess credit of Rs.1,00,10,808 from three months after refund filing date (17.9.2011 to 21.11.2019) following Supreme Court precedent in Ranbaxy Laboratories. Appeal partially allowed with modified orders.

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Issues Involved:
1. Entitlement to refund of interest amount of Rs.88,22,475/- paid on the CENVAT credit of Rs.83,10,886/- reversed as per Section 72 of the Finance Act, 2010.
2. Interest on the excess credit of Rs.1,00,10,808/- after the expiry of three months from the date of filing of refund i.e., from 17.09.2011 to 21.11.2019.

Summary:

Issue 1: Refund of Interest Amount of Rs.88,22,475/-
The appellants had availed CENVAT credit on inputs used in the manufacture of both exempted and dutiable products during 2000-2004. A show-cause notice was issued demanding Rs.15,16,35,274/- under Rule 6(3)(b) of CCR, 2004. The appellants reversed the entire credit of Rs.1,91,93,628/- under protest. The Tribunal remanded the matter for re-determination in light of the retrospective amendment to Rule 6 of CCR, 2002/2004 by the Finance Act, 2010. The appellants paid Rs.88,22,475/- as interest on the proportionate credit of Rs.83,10,886/- and sought recredit of the balance amount. The Commissioner appropriated the proportionate credit and interest but denied the recredit of Rs.1,00,10,808/- for not following the procedure u/s 11B of CEA, 1944.

The Tribunal in its order dated 18.07.2019 directed re-credit of the excess reversal and opined that the interest of Rs.88,22,475/- was not warranted. However, the adjudicating authority sanctioned the refund without interest. The appellants claimed that the interest paid was not justified as the credit was reversed prior to utilization. The Tribunal held that the payment of interest was in compliance with Section 72 of the Finance Act, 2010, and thus, the refund of Rs.88,22,475/- was not allowed.

Issue 2: Interest on Excess Credit of Rs.1,00,10,808/-
The appellants filed a refund claim for Rs.1,00,10,808/- on 17.06.2011, which was rejected initially but later sanctioned without interest. The Tribunal held that the appellants are entitled to interest on the refund amount from the expiry of three months from the date of the refund claim (17.09.2011) to the date of payment (21.11.2019), in line with the Supreme Court judgment in Ranbaxy Laboratories Ltd. vs. Union of India.

Conclusion:
The Tribunal upheld the rejection of the refund of the interest amount of Rs.88,22,475/- but allowed interest on the refund of Rs.1,00,10,808/- from the date of expiry of three months from the filing of the refund claim. The appeals were disposed of accordingly.

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