Petitioner entitled to refund of excess interest paid under Rule 8(3) declared ultra vires Constitution

The HC held that the petitioner was entitled to refund of Rs. 3,66,649 paid as excess interest to the Department under Rule 8(3) of Central Excise Rules, 2002, which was declared ultra vires. The court ruled that amounts collected under provisions declared ultra vires violate Article 265 of the Constitution and must be refunded. Following SC precedent in Mafatlal's case, the Department was obligated to refund the excess amount even without a formal application. The court directed refund with 6% annual interest from the deposit date, treating the matter as a simple refund application rather than under Section 11B.

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Issues:
Recovery of excess interest paid to the Department, validity of Rule 8 of the Central Excise Rules, 2002, applicability of Section 11B of the Central Excise Act, 1944, maintainability of writ petition for refund, obligation of the Department to refund unlawfully received amount, entitlement to interest on refunded amount.

Analysis:
The petitioner, engaged in manufacturing, sought to recover Rs. 3,66,649 paid as excess interest to the Department due to delayed excise duty payment. The petitioner relied on a Rajasthan High Court judgment declaring Rule 8(3) ultra vires to Section 11AB, limiting interest to 2% per month. Despite rejection based on Section 11B's time bar, subsequent appeals favored the petitioner. The petitioner argued the refund based on Supreme Court precedent in 'Mafatlal Industries Ltd. vs. Union of India', emphasizing the ultra vires declaration of Rule 8(3).

The respondents contended that the CESTAT's decision was final, negating the refund obligation. They argued that the petitioner, having availed Section 11B remedy, couldn't seek relief under Article 226. Citing Mafatlal's case, the revenue asserted that the petitioner's claim wasn't maintainable under Rule 11/Section 11B due to the constitutional challenge absence.

The Court analyzed Mafatlal's case, emphasizing the right to refund under Article 265 upon a law's unconstitutionality declaration. Rejecting the revenue's stance, the Court noted that an ultra vires provision's existence voids actions based on it, necessitating refunds. It held that unlawfully received amounts must be refunded, even without an application, as per Mafatlal's principles.

The Court ruled the Department unjustified in withholding Rs. 3,66,649 and directed its refund with 6% annual interest from the erroneous deposit date. It allowed the writ petition, emphasizing the State's obligation to refund under Mafatlal's precedent. All pending applications were disposed of accordingly.

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