2025 (9) TMI 398 - HC - Central Excise

State ordered to refund Rs. 8,75,461 with 12% interest for unlawfully collected excess excise duty within six weeks

The HC allowed the petition, holding that the State unlawfully collected and retained excess excise duty and that denial of interest was unsustainable. ... Maintainability of petition - Refusal to grant interest on the excise duty - it is argued that the manufacturing turnover of the Bhiwadi unit was double-counted due to the improper inclusion of stock transfers from the Delhi unit, and requested a re-computation - extended period of limitation - HELD THAT:- From a bare perusal of the record, it is evident that petitioner was forced to pay the excess excise amount from their meager source, and that respondents have collected the same, retaining and enjoying the benefits of this money for an extended period of time without any lawful authority. Thereafter, the argument advanced by the learned counsel for respondents that petitioner is not entitled to any interest cannot be accepted in the teeth of the judgment of the Hon’ble Apex Court in the matter of Mafatlal Industries Ltd. [1996 (12) TMI 50 - SUPREME COURT], where it was held that 'The State has a constitutional obligation to give back the money to the tax payer. An act done in violation of constitutional mandate is void and no right flows out of that void act to the State. The State is in unlawful possession of the taxpayer’s property. The State cannot retain it on any equitable ground nor can it give it to any other person out of any supposed equitable consideration. The constitutional mandate cannot be ignored on the pretext of any rule of equity or on the ground of what is perceived as substantive justice.' One thing, therefore, is evident from the judgments relied upon by petitioner that social justice is a pervasive presence and so, save in special situations, it is fair to be guided by the strategy of equity. Interest is the return or compensation for the use or retention of another’s monies. Petitioner paid the amount from its meagre resources. Petitioner would have perhaps even borrowed money to pay. Respondents have collected, retained and enjoyed the benefits of this money for a sufficiently long time without the authority of law. Petitioner had to run from pillar to post to get his money. Therefore, borrowing from the words of His Lordship V.R. Krishna Iyer (as he then was), it can even mould the relief by consenting to restore little sums taken in little transactions from little persons to whom they belong. Thus, it is evident that the very collection and retention of excess excise duty by respondents was without the authority of law; therefore, respondents are under a statutory obligation to refund the same with interest from the date of actual deposit - the rejection of the interest on the excess excise duty amount of Rs. 8,75,461/- claim in the impugned order dated 07th October 2024, is unsustainable in the eyes of law. Accordingly, the impugned order dated 07th October 2024 to the extent of denying the claim of interest on the excess excise duty (Rs. 8,75,461/-) is hereby quashed and set aside. This Court directs respondents to refund the excess excise duty amount of Rs. 8,75,461/- with interest at the rate of 12% per annum. The interest shall be calculated from the date of the actual payment of each installment of the excess amount until the date of its refund. Respondents are directed to make payment of the interest amount, within a period of six weeks from today - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the writ petition under Article 226 is maintainable despite the availability of alternative statutory appellate remedies where the petitioner seeks interest on excess excise duty refunded after long delay. 2. Whether excess excise duty collected and retained by the revenue without authority of law gives rise to a constitutional right to refund with interest independent of Section 11BB/Section 11B/Section 35FF of the Central Excise Act, 1944. 3. If interest is payable on such excess collection, whether the revenue can lawfully deny interest by invoking the time-limits or procedural provisions of Section 11BB read with Section 35FF, and if payable, the rate and period of such interest (i.e., from date of deposit to date of actual payment). 4. Whether principles of equity, restitution and compensatory interest (including precedents applying rates such as 12% p.a. or other rates) apply where the assessee was compelled to deposit excess duty from meagre resources and the revenue retained use of those funds for an extended period. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of writ petition despite alternative statutory remedy Legal framework: Writ jurisdiction under Article 226; availability of alternative statutory remedies by appeal before appellate authorities under the Central Excise regime. Precedent Treatment: The Court considered established principles that alternative adequate and efficacious remedies ordinarily preclude exercise of writ jurisdiction, but recognized exceptions where relegation would cause unjust hardship or where the challenge concerns collection/retention without authority of law leading to constitutional rights (as in authorities relied upon by petitioner). Interpretation and reasoning: The Court found that the petitioner had litigated for over a decade, succeeded in establishing entitlement (order of 10th June 2024) and had already applied for refund; requiring further statutory appeals would perpetuate hardship and be futile in practical terms. The prolonged history and the nature of the claim (recovery of money collected without authority) made relegation to alternate remedy inequitable. Ratio vs. Obiter: Ratio - where the State has retained monies without authority for an extended period and the assessee has no efficacious remedy that would prevent further injustice, writ jurisdiction is maintainable. Obiter - general observations on alternative remedy doctrine. Conclusion: The writ petition was maintainable and was heard on merits; the preliminary objection based on alternative remedy was rejected. Issue 2 - Right to refund and applicability of constitutional principles where duty was collected without authority of law Legal framework: Article 265 (taxation only by law) and remedial provisions including Section 11B/11BB/35FF of the Act of 1944; principles of restitution where collection was without authority of law. Precedent Treatment: The Court relied on and followed ratios in Mafatlal Industries Ltd., Redihot Electricals, Swastik Metals and other authorities which hold that amounts collected without authority of law are repayable and that limitation or statutory rules cannot defeat a constitutional right to restitution; the decision in UOI vs ITC Ltd. (referenced by the adjudicating authority) was also considered. Interpretation and reasoning: The Court held that the collection and retention of excess excise duty was without lawful authority once the liability was recomputed in petitioner's favour. The State was in unlawful possession of the taxpayer's property and under a corresponding obligation to refund. The statutory silence as to refundability does not permit retention; constitutional mandate requires restitution. Ratio vs. Obiter: Ratio - unlawful collection/retention of tax creates a constitutional obligation on the State to refund; statutory provisions cannot negate that obligation where collection was without authority. Obiter - citations stressing social justice and equitable restitution principles. Conclusion: Excess excise duty retained by the revenue was refundable as being collected without authority of law; refund must be made. Issue 3 - Entitlement to interest on refunded excess duty and effect of Section 11BB/Section 35FF Legal framework: Statutory provisions concerning refund procedure and timelines (Section 11B, Section 11BB, Section 35FF) vis-à-vis common law/constitutional restitutionary principles and judicially awarded interest as compensation for wrongful retention. Precedent Treatment: The Court applied and followed Mafatlal (Supreme Court) which holds that a person who paid tax not payable is entitled to refund and such claim cannot be governed solely by refund provisions like Section 11B; Redihot and Swastik (High Court decisions) which awarded interest as compensation for wrongful retention; Sandvik Asia and subsequent authorities which apply compensatory interest where revenue unjustifiably withholds monies. Interpretation and reasoning: The Court rejected the respondents' contention that Section 11BB/35FF precludes interest. It reasoned that where the collection itself is without authority, the constitutional and equitable obligation to restore includes payment of interest as compensation for use/retention of another's monies. The Court emphasized that withholding money for prolonged periods cannot be justified by revenue's erroneous view of law or by invoking statutory timelines; delay by revenue makes it liable to compensate. Ratio vs. Obiter: Ratio - where excess tax was collected without authority, the assessee is entitled to interest as compensation for wrongful retention; statutory refund provisions do not bar such relief. Obiter - discussion of the interplay between statutory timelines and constitutional restitution. Conclusion: Interest on the excess excise duty was legally payable notwithstanding Section 11BB/35FF; denial of interest in the impugned order was unsustainable. Issue 4 - Rate and period of interest; equitable compensation Legal framework: Judicial discretion to award compensatory interest; precedents awarding specific rates (12% p.a. in several High Court decisions, other rates in Sandvik and its progeny); principle that interest should run from date of payment/deposit to date of refund. Precedent Treatment: The Court relied on Redihot and Swastik which awarded interest at 12% p.a., Mafatlal which affirmed entitlement to interest without being constrained by certain refund rules, and Sandvik-related jurisprudence recognizing compensation for delayed refund where revenue at fault. Interpretation and reasoning: Considering the prolonged period (refund claimed for deposits in 2013 and adjudication in 2024), the petitioner's likely use of the sum for working capital or borrowing to meet the deposit, and precedents awarding 12% p.a., the Court found 12% p.a. to be just and proper as compensatory interest. The Court directed interest to be calculated from the date of actual payment of each instalment until date of refund and ordered payment within a specified period. Ratio vs. Obiter: Ratio - compensatory interest is payable from date of actual deposit to date of refund; awarding interest at 12% p.a. is within judicial discretion in circumstances where revenue wrongfully retained funds for long periods. Obiter - policy observations about multiplication of working capital and equitable moulding of relief for small claimants. Conclusion: Interest at 12% per annum is awarded on the excess excise duty from date of actual payment of each instalment until refund; the impugned denial of interest is quashed and refund with interest directed to be paid within six weeks.