2025 (7) TMI 78 - AT - Service Tax

Supreme Court precedent on service tax refund interest calculation must be followed over conflicting Tribunal decisions under Section 11BB

CESTAT Ahmedabad ruled that SC precedent in Ranbaxy Laboratories vs. Union of India must be followed over conflicting Tribunal decisions regarding ... Payment of interest on delayed refund of service tax - relevant date for calculation of interest - interest shall be payable from the date of expiry of three months from the date of Tribunal’s order or otherwise? - Section 11BB of Central Excise Act, 1944 - HELD THAT:- The learned Commissioner (Appeals) has erred in passing the impugned order by following the judgment of Larger Bench in the case of Indian Thermoplastics Limited vs. Commissioner of Customs, Kolkata [2003 (12) TMI 84 - CESTAT, NEW DELHI] and the decision in case of Coronation Spinning India vs. Commissioner of Customs, Kolkata [2004 (6) TMI 59 - CESTAT, NEW DELHI (LB)]. When there is a judgment of Hon'ble Supreme Court in this field delivered in the case of Ranbaxy Laboratories Limited vs. Union of India [2011 (10) TMI 16 - SUPREME COURT], the Commissioner should have followed the ruling in Ranbaxy case and not the orders passed by Tribunal in the case Indian Thermoplastics Limited vs. Commissioner of Customs, Kolkata and in case of Coronation Spinning India vs. Commissioner of Customs, Kolkata because the order of Larger Bench is against the ratio decidendi of Ranbaxy case Under article 141 of the India Constitution, the law declared by Hon'ble Supreme Court of India is the law of land and it is in force and applicable throughout the territory of India and it cannot be ignored on the pretext that the Larger Bench of the Tribunal has given the ruling otherwise. In Ranbaxy case, the Hon'ble Supreme Court has clearly held that it is manifest from the afore extracted provisions that Section 11BB of the Act comes into play only after an order for refund has been made under Section 11B of the Act. Section 11BB of the Act lays down that in case any duty paid is found refundable and if the duty is not refunded within a period of three months from the date of receipt of the application to be submitted under sub-section (1) of Section 11B of the Act, then the applicant shall be paid interest at such rate, as may be fixed by the Central Government, on expiry of a period of three months from the date of receipt of the application - Manifestly, interest under Section 11BB of the Act becomes payable, if on an expiry of a period of three months from the date of receipt of the application for refund, the amount claimed is still not refunded. Thus, the only interpretation of Section 11BB that can be arrived at is that interest under the said Section becomes payable on the expiry of a period of three months from the date of receipt of the application under Sub-section (1) of Section 11B of the Act and that the said Explanation does not have any bearing or connection with the date from which interest under Section 11BB of the Act becomes payable. The order passed by the Adjudicating Authority and the Commissioner (Appeals) is not sustainable and are liable to be set-aside - case is remanded back to the first Adjudicating Authority with direction to decide the refund application of the appellant - Appeal allowed by way of remand. The core legal questions considered in this appeal revolve around the entitlement to interest on delayed refund of service tax under the Central Excise Act, 1944, specifically:Whether interest under Section 11BB of the Central Excise Act, 1944 becomes payable from the expiry of three months from the date of receipt of the refund application or from a later date, such as the date of the appellate authority's order.The applicability and interpretation of Explanation B(ec) to Section 11B and the interplay between Sections 11B and 11BB concerning refund and interest claims.The binding nature of the Supreme Court judgment in Ranbaxy Laboratories Limited vs. Union of India (2011) on the issue of interest on delayed refunds vis-`a-vis the contrary Larger Bench decisions of the Tribunal in Indian Thermoplastics Limited and Coronation Spinning India.The principle of unjust enrichment in the context of refund claims and whether it affects the entitlement to interest.Issue-wise Detailed Analysis:1. Entitlement to Interest on Delayed Refund under Section 11BB of the Central Excise Act, 1944Legal Framework and Precedents: Section 11B of the Central Excise Act provides for refund of duty paid erroneously or in excess, while Section 11BB mandates payment of interest if the refund is not paid within three months from the date of receipt of the refund application. Explanation B(ec) to Section 11B introduces a deeming fiction that where the refund order is passed by an appellate authority or court, it shall be deemed to be an order under sub-section (2) of Section 11B.Prior to the Supreme Court's ruling in Ranbaxy Laboratories Limited vs. Union of India (2011), Larger Benches of the Tribunal in Indian Thermoplastics Limited and Coronation Spinning India had held that interest on delayed refund would be payable only from the expiry of three months after the appellate authority's order, not from the date of the original refund application.Court's Interpretation and Reasoning: The Court emphasized that the Supreme Court's decision in Ranbaxy is binding under Article 141 of the Constitution and overrides contrary Tribunal Larger Bench decisions. The Supreme Court clarified that Section 11BB applies once an order for refund is made under Section 11B, and interest becomes payable if the refund is not made within three months from the date of receipt of the refund application. The Explanation B(ec) only deems the appellate order as an order under Section 11B(2) but does not postpone the date from which interest becomes payable.Key Evidence and Findings: The appellant had filed the refund application on 10.11.2004, and the Tribunal had granted the refund on merits by order dated 17.10.2013. Despite this, the adjudicating authority and Commissioner (Appeals) allowed interest only from 16.01.2014 (three months after the Tribunal order), relying on the Larger Bench decisions. The appellant contended that interest should be payable from three months after the original refund claim date in 2004, as per Ranbaxy.Application of Law to Facts: The Court found that the adjudicating authority and Commissioner (Appeals) erred in following the Larger Bench decisions instead of the Supreme Court's ruling. The Supreme Court's interpretation mandates that interest accrues from the expiry of three months from the date of the refund application, irrespective of appellate proceedings.Treatment of Competing Arguments: The Revenue argued that the Larger Bench decisions were binding and that interest should accrue only after the appellate order. The Court rejected this, holding that the Supreme Court judgment is the law of the land and must be followed. The Court noted the Revenue failed to provide a reasoned order explaining the disregard of the Supreme Court's ruling.Conclusion: Interest on delayed refund under Section 11BB is payable from the expiry of three months from the date of receipt of the refund application, not from the appellate order date. The Explanation B(ec) does not affect this timeline.2. Doctrine of Unjust EnrichmentLegal Framework: The doctrine of unjust enrichment prevents a party from retaining a benefit without paying for it. The Tribunal had earlier remanded the matter for examination of unjust enrichment before granting refund.Court's Interpretation and Reasoning: While the doctrine was considered at an earlier stage, the present appeal focuses on the interest entitlement post-refund order. The Court did not revisit unjust enrichment in detail but implicitly accepted that refund was rightly granted on merits as per Tribunal's earlier order.Application of Law to Facts: Since the refund was granted after due consideration including unjust enrichment, the issue before the Court was limited to interest entitlement.Conclusion: The doctrine of unjust enrichment does not affect the entitlement to interest once refund is granted.3. Binding Nature of Supreme Court's Ruling vis-`a-vis Tribunal Larger Bench DecisionsLegal Framework: Article 141 of the Constitution establishes that the law declared by the Supreme Court is binding on all courts and authorities in India.Court's Interpretation and Reasoning: The Court held that the Larger Bench decisions of the Tribunal in Indian Thermoplastics Limited and Coronation Spinning India, which conflicted with the Supreme Court ruling in Ranbaxy, cannot be followed. The Supreme Court's decision is authoritative and must be applied notwithstanding contrary Tribunal orders.Application of Law to Facts: The impugned orders relied on the Larger Bench decisions, which the Court found erroneous in light of Ranbaxy.Conclusion: The Supreme Court judgment in Ranbaxy is binding and overrides conflicting Tribunal decisions.4. Application of Supreme Court's Decision to Present CaseLegal Framework: The Supreme Court in Ranbaxy held that interest under Section 11BB accrues from three months after the refund application date, regardless of appellate proceedings.Court's Interpretation and Reasoning: The Court applied this ratio directly to the appellant's case, where the refund application was filed in 2004, and refund was granted only in 2013. Interest should therefore be calculated from three months after 10.11.2004.Application of Law to Facts: The appellant was entitled to interest from the expiry of three months from the refund application date, not from the date of the Tribunal's order or subsequent appellate orders.Conclusion: The appellant's claim for interest from the date of refund application is legally sustainable.Significant Holdings:'Section 11BB of the Act lays down that in case any duty paid is found refundable and if the duty is not refunded within a period of three months from the date of receipt of the application to be submitted under sub-section (1) of Section 11B of the Act, then the applicant shall be paid interest at such rate, as may be fixed by the Central Government, on expiry of a period of three months from the date of receipt of the application.''The Explanation appearing below Proviso to Section 11BB introduces a deeming fiction that where the order for refund of duty is not made by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise but by an Appellate Authority or the Court, then for the purpose of this Section, the order made by such higher Appellate Authority or by the Court shall be deemed to be an order made under sub-section (2) of Section 11B of the Act. It is clear that the Explanation has nothing to do with the postponement of the date from which interest becomes payable under Section 11BB of the Act.''Under Article 141 of the India Constitution, the law declared by Hon'ble Supreme Court of India is the law of land and it is in force and applicable throughout the territory of India and it cannot be ignored on the pretext that the Larger Bench of the Tribunal has given the ruling otherwise.''In view of the law laid down by Hon'ble Supreme Court in Ranbaxy case, the order passed by the Adjudicating Authority and the Commissioner (Appeals) is not sustainable and are liable to be set-aside.'Final Determinations:The appellant is entitled to interest on the delayed refund under Section 11BB of the Central Excise Act, 1944, from the expiry of three months from the date of receipt of the refund application (10.11.2004), irrespective of appellate proceedings.The Explanation B(ec) to Section 11B does not postpone the date from which interest becomes payable.The Larger Bench decisions of the Tribunal in Indian Thermoplastics Limited and Coronation Spinning India, which held otherwise, are overruled by the Supreme Court decision in Ranbaxy and cannot be followed.The impugned orders denying interest from the refund application date are set aside, and the matter is remanded to the first Adjudicating Authority for fresh adjudication in accordance with the Supreme Court's ruling.