2025 (1) TMI 479 - AT - Service Tax

Interest on delayed refund starts from application date not order date under Section 11BB

CESTAT Kolkata allowed the appeal regarding interest on delayed refund. Following SC precedent in Ranbaxy Laboratories case, the tribunal held that ... Interest on delayed refund - relevant date from which the interest would be payable by the Revenue - rate of interest thereon. Interest on delayed refund - relevant date from which the interest would be payable by the Revenue - HELD THAT:- The issue is no more res integra. The Hon‟ble Supreme Court in the case of RANBAXY LABORATORIES LTD. VERSUS UNION OF INDIA AND ORS. [2011 (10) TMI 16 - SUPREME COURT] has held that 'the liability of the revenue to pay interest under Section 11BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund under Section 11B(1) of the Act and not on the expiry of the said period from the date on which order of refund is made.' Thus, the appellant is eligible for the interest taking the refund claim date as the base. The appellant has filed the refund claim on 22.11.2007. Hence after considering the period of 3 months for processing of this application, the interest would be payable from 22.02.2008 till the date on which the refund has been paid to them. Rate of interest to adopted - HELD THAT:- The Allahabad Bench, in the case of M/S. PARLE AGRO PVT. LTD. VERSUS COMMISSIONER, CENTRAL GOODS & SERVICE TAX, NOIDA (VICE-VERSA) [2021 (5) TMI 870 - CESTAT ALLAHABAD] has held that 'Section 11BB provides for interest on delayed refund. It states that if any duty ordered to be refunded under sub-section (2) of Section 11B is not refunded within three months from the date of receipt of the application, then the applicant shall be entitled to interest after the expiry of three months from the date of receipt of the application at such rate not below 5% and not exceeding 30% as may be notified by the Central Government in the Official Gazette.' - thus, the appellant would be eligible for interest @ 12% per annum. Conclusion - i) The interest is required to be paid from three months from the date of the initial filing of the refund claim till the date of granting the refund. ii) The interest is to be paid @ 12% per annum. iii) Interest to be paid within 8 weeks from the date of communication of this order. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether interest under Section 11BB of the Central Excise Act becomes payable from the date immediately after the expiry of three months from the date of receipt of the refund application to the original authority or from the date immediately after the expiry of three months from the date on which an appellate/tribunal order is made allowing the refund. 2. Whether the date of initial payment 'under protest' (prior to filing of refund application) constitutes the commencement date for computation of interest on delayed refund. 3. The appropriate rate of interest payable on delayed refunds-whether the statutory/notified rate in force or a rate of 12% per annum is to be applied in the facts of the case. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Commencement date for interest under Section 11BB Legal framework: Section 11BB prescribes payment of interest where duty ordered to be refunded under Section 11B(2) is not refunded within three months from the date of receipt of the application under Section 11B(1); an Explanation deems an appellate/tribunal/court order allowing refund to be an order under Section 11B(2) for the purposes of Section 11BB. Precedent treatment: The Court follows and applies the reasoning of the Supreme Court in Ranbaxy Laboratories (and subsequent decisions adopting the same principle) which held that Section 11BB's liability to pay interest commences on expiry of three months from receipt of the refund application and that the Explanation does not postpone the commencement date to the date of an appellate order. Interpretation and reasoning: The tribunal interprets the statutory language to require two antecedent events before interest flows: (a) an order for refund under Section 11B(2) and (b) non-refund within three months from the date of receipt of the application. The Explanation only deems an appellate order to be an order under Section 11B(2) for purposes of applicability of Section 11BB; it does not alter the starting point (three months from the application date) for computing delayed-interest. The CBEC circular reiterating that interest is attracted automatically beyond three months is relied on to reinforce the statutory interpretation and administrative position. Ratio vs. Obiter: Ratio - the commencement of interest is from the date immediately after the expiry of three months from receipt of the refund application; the Explanation does not shift the starting date to the date of appellate order. Conclusion: Interest is payable from three months after the date the refund application was originally filed (in the case, from 22.02.2008), and not from three months after the date of the Tribunal/appeal order. Issue 2 - Effect of payment 'under protest' on commencement of interest Legal framework: Section 11BB deals with interest on delayed refunds once an order for refund under Section 11B(2) exists and three months from application have expired. There is no express provision in Section 11BB fixing commencement from date of any interim payment made 'under protest'. Precedent treatment: Decisions cited (including Ranbaxy and later benches following it) treat the date of filing the refund application as the relevant trigger for interest reckoning; separate line of authorities dealing with pre-deposits/amounts deposited during investigation allow interest from deposit date when such deposits are regarded as pre-deposit, but those are distinguishable on facts. Interpretation and reasoning: The Court distinguishes between (a) a refund claim filed and (b) an earlier involuntary or protested payment. Where the statutory scheme focuses on application date for triggering interest, mere payment under protest prior to filing the refund claim does not alter the statutory commencement date for interest under Section 11BB. The Court notes authorities awarding interest from deposit date in contexts of pre-deposit during investigation or adjudication but treats those as fact-specific and separate from refund-application-triggered interest. Ratio vs. Obiter: Ratio - the date of filing the refund application governs when interest under Section 11BB begins; payment 'under protest' does not shift that statutory commencement, absent factual/legal basis equating such payment to a treated pre-deposit under applicable authorities. Conclusion: The appellant is not entitled to have interest computed from the date of payment 'under protest' (30.03.2006); interest runs from three months after the refund application date (22.02.2008) until the refund date. Issue 3 - Rate of interest to be applied on delayed refund Legal framework: Section 11BB prescribes interest at such rate (not below 5% and not exceeding 30%) as fixed by the Central Government by notification; administrative practice and tribunal/court precedents apply notified rates or adopt an appropriate equitable rate in specific contexts (including application of 12% in several tribunal decisions). Precedent treatment: The Tribunal follows a line of decisions (Parle Agro, Churchit, Duggar Fibre, Emmar Mfg Construction and others) which have applied/enhanced interest to 12% p.a. in cases involving refund of amounts deposited during investigation or litigation and where higher benches deemed 12% appropriate. The Ranbaxy line governs commencement date, while Parle Agro and subsequent benches supply precedent for selecting 12% in similar refund contexts. Interpretation and reasoning: The Court reasons that while Section 11BB contemplates a notified range, tribunal practice and precedents in analogous refund/pre-deposit situations have found 12% to be an appropriate rate where notified rates varied and where equities favored a higher rate. Given the factual posture (refund allowed after long delay and parallels drawn to authorities awarding 12% for amounts deposited under compulsion/in litigation), the Tribunal adopts 12% as the appropriate rate to compensate for prolonged deprivation. Ratio vs. Obiter: Ratio - in the facts of this appeal, interest on the sanctioned refund is to be paid at 12% per annum; this is a determinative remedial conclusion for the present matter (applies the cited tribunal precedents). The broader question of mandatory application of a particular rate in all cases remains dependent on notification and facts (obiter in broader generality). Conclusion: Interest on the delayed refund is to be calculated at 12% per annum from 22.02.2008 (three months after filing the refund application) until the date of actual refund; payment is directed to be made within the period fixed by the Tribunal (eight weeks from communication of the order in this judgment). Cross-references and outcome Cross-reference: Issue 1's conclusion (commencement date) controls computation under Issue 3 (rate) - interest computed at 12% runs from 22.02.2008 to refund date. Issue 2 is distinguished from Issue 3: although some authorities award interest from deposit date where deposits were pre-deposits made during investigation, those are fact-specific and do not displace the statutory trigger under Section 11BB for ordinary refund claims. Disposition: The impugned order denying interest is set aside to the extent necessary; refundant interest is directed as above (commencement from three months after original refund application, at 12% per annum), with payment to be made within the timeframe ordered by the Tribunal.