2025 (2) TMI 4 - AT - Central Excise

Pre-deposits appropriated by authorities become duty upon appropriation, refund claims governed by Central Excise Act provisions

M/s SKJ Metals Company Versus Commissioner, CGST & Central Excise, Agra

CESTAT Allahabad held that pre-deposits made during investigation, when appropriated by authorities, acquire the character of duty upon appropriation. ... Determination of the appropriate rate of interest on the refund of a pre-deposit made by the appellant during an investigation - Clandestine manufacture and removal - HELD THAT:- In the present case impugned order clearly observes that the amount that was deposited by the appellant at the time of visit of officers to their premises was appropriated by the Original Authority. The amount so appropriated acquired the character of duty, the moment it is appropriated against the demand made. In case of Mafatlal Industries [1996 (12) TMI 50 - SUPREME COURT], Hon’ble Supreme Court has observed 'Section 11B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act are constitutionally valid and have to be followed and given effect to. Section 72 of the Contract Act has no application to such a claim of refund and cannot form a basis for maintaining a suit or a writ petition. All refund claims except those mentioned under Proposition (ii) below have to be and must be filed and adjudicated under the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be. It is necessary to emphasise in this behalf that Act provides a complete mechanism for correcting any errors whether of fact or law and that not only an appeal is provided to a Tribunal - which is not a departmental organ - but to this Court, which is a civil court.' Even if the amount is considered to be refund of deposit then also the same has to be refunded under section 11B as the said section has provided for the refund of deposit lying in account current. All the refunds which are filed under the Central Excise Act, 1944 in terms of the decision of Hon’ble Supreme Court in case of Mafatalal Industries and the above provisions whether of the duty, interest or any deposit made are governed by the provision of Section 11B of the Act. The interest thus gets governed by the provisions of Section 11BB as has been held by Hon’ble Supreme Court in case of Ranbaxy, [2011 (10) TMI 16 - SUPREME COURT]. There has been exception carved out only for determination of relevant date for determining the period for which interest is to be paid in respect of deposit made as per Section 35F for filing the appeal before an appellate authority. Section 35FF provides that interest would be paid from the date of deposit made under Section 35F. Conclusion - Statutory provisions must be adhered to when determining interest rates on refunds. The interest rate of 6% as granted by the adjudicating authority upheld. Appeal dismissed. The core issue in this appeal was the determination of the appropriate rate of interest on the refund of a pre-deposit amount of Rs. 10,00,000/- made by the appellant during an investigation. The appellant contended that the interest should be at 12%, whereas the adjudicating authority had granted interest at 6%.The relevant legal framework was based on Section 35FF of the Central Excise Act, 1944, which governs the interest on delayed refunds of pre-deposits. This section allows for interest at a rate not below 5% and not exceeding 36%, as notified by the Central Government. The appellant argued for a higher interest rate based on precedents, including decisions in cases like Parle Agro Pvt. Ltd. and Continental Engines Pvt. Ltd., which had granted 12% interest in similar circumstances.The court's interpretation and reasoning were grounded in the statutory provisions and precedents. The court noted that the statutory provision under Section 35FF did not mandate a specific interest rate of 12% and that the interest rate granted was in accordance with Notification No. 67/2003-C.E. (N.T.), which fixed the rate at 6% per annum. The court further referenced the Supreme Court's decision in Sandvik Asia Ltd., which emphasized that statutory provisions must govern the award of interest.Key evidence and findings revolved around the procedural history of the case. The appellant had been accused of clandestine manufacturing and removal of goods, leading to a demand and penalties, which were later set aside by the Tribunal. Following this, the appellant sought a refund of the pre-deposit made during the investigation. The refund was granted with interest at 6%, which the appellant challenged, seeking a higher rate based on other Tribunal decisions.The application of law to facts was pivotal in the court's decision. The court noted that the amount deposited during the investigation was appropriated by the original authority and thus acquired the character of duty. Consequently, the refund and interest were governed by Section 11B and Section 11BB of the Central Excise Act, which pertain to refunds of duty and interest on delayed refunds, respectively.In treating competing arguments, the court acknowledged the appellant's reliance on decisions granting 12% interest but emphasized the binding nature of statutory provisions and the decisions of superior courts. The court also highlighted that the decisions cited by the appellant were distinguishable or had been reconsidered by higher courts, such as the Supreme Court in the Willowood Chemicals Pvt. Ltd. case, which clarified the application of interest provisions.The significant holdings of the court included the affirmation that statutory provisions must be adhered to when determining interest rates on refunds. The court concluded that the appeal lacked merit and upheld the interest rate of 6% as granted by the adjudicating authority. The court's decision reinforced the principle that statutory provisions take precedence over judicial precedents unless explicitly overruled or modified by higher judicial authorities.