2025 (10) TMI 812 - HC - Central Excise

Writ allowed; department must refund tax with interest and pay compensation after rejecting refund as time-barred

HC allowed the writ, holding the petition maintainable and declining to compel exhaustion of statutory appeals as futile after two decades of litigation. ... Maintainability of petition - availability of alternative remedy - Time barred refund claim - grant of refund along with interest, as well as to pay compensation for withholding of refund for longer period of time - petitioner had not reversed/deposited the CENVAT Credit involved in the inputs written off by it in its balance sheet for the A.Y. 2000-2001. Maintainability of petition - availability of alternative remedy - HELD THAT:- Relegating petitioner to the windmill of statutory appeals by filing an appeal before the Commissioner (Appeals), GST/CGST will merely add on to the hardship already suffered by petitioner, who has been litigating for more than two decades for its legal rights. Therefore, argument of counsel for respondent-department that petitioner should avail alternative statutory remedy cannot be deemed efficacious. Thus, in order to settle the controversy at hand, present writ petition is heard on merits. Time limitation - HELD THAT:- The rejection of refund on the ground that petitioner had filed instant refund claim on 06th October 2022 after expiry of one year from 29th June 2021 is wholly perverse, especially when petitioner had filed the refund claim on 19th February 2018 itself and objection of limitation has already been rejected vide order dated 29th June 2021. Therefore, the aforesaid approach adopted by respondent-department clearly reflects that they are time and again harassing petitioner on the same ground, which has already been adjudged as unsustainable by the CESTAT and has attained legal quietus. Thus, it is evident that respondent-department is under a statutory obligation to refund the said amount with interest - the rejection of claim of refund vide order dated 04th January 2023, is unsustainable in the eye of law. The present writ petition stands allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a departmental rejection of a refund claim as time-barred under Section 11B of the Central Excise Act, 1944 is sustainable where an earlier appellate order (CESTAT) has already held the same claim to be within time and that order has attained finality. 2. Whether a writ petition is maintainable where an alternative statutory remedy (appeal to Commissioner (Appeals) under Section 35) exists, in circumstances where the petitioner has been engaged in protracted litigation and the identical limitation point has been conclusively decided by a final appellate order. 3. Whether, and on what basis, interest should be awarded on a refunded excise/duty amount where the department retained the money during prolonged litigation and the taxpayer ultimately succeeds in obtaining refund. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of a final appellate order on limitation under Section 11B and the validity of subsequent departmental rejection as time-barred Legal framework: Section 11B of the Central Excise Act prescribes the time limit for filing refund claims and identifies the relevant date from which the one-year limitation runs; entitlement to refund is governed by statutory refund provisions and the date on which entitlement is finally determined is critical for computing limitation. Precedent Treatment: The Court gave effect to the finding of the CESTAT that the entitlement to refund was finally adjudicated on the date of the appellate order (29.06.2021) and that the earlier claim filed on 19.02.2018 was within one year of the relevant finalisation date; the department did not assail the CESTAT order and thus its findings attained finality. The Court followed and enforced the CESTAT conclusion rather than distinguishing or overruling it. Interpretation and reasoning: The Court reasoned that once an appellate authority has finally adjudicated entitlement and limitation in favour of the claimant and that order remains unchallenged, subsequent departmental action rejecting the very claim on the same limitation ground is perverse. The critical facts were: (a) the refund claim was initially filed on 19.02.2018; (b) CESTAT held that the claim was within time and set aside earlier rejections; and (c) the CESTAT order was not appealed by the department and thus attained finality. Consequently, a later departmental denial dated 04.01.2023 invoking limitation (because of a second claim filed on 06.10.2022) ignored the earlier adjudication and amounted to inconsistent and unreasonable exercise of power. The Court emphasized that entitlement having been finally determined, the department was under a statutory obligation to refund the amount accordingly. Ratio vs. Obiter: Ratio - A departmental rejection of a refund on grounds of limitation is unsustainable where an appellate body has finally adjudicated that the original claim was within time and that final order has not been challenged. Obiter - Observations about the precise interplay of multiple refund filings and dates in other factual permutations beyond those presented. Conclusions: The departmental order rejecting the refund as time-barred was quashed and set aside; the petitioner is entitled to the refund amount which the department must pay, being under statutory obligation to do so in light of the final appellate determination. Issue 2 - Maintainability of writ petition in presence of alternative statutory remedy given protracted and concluded litigation on the same point Legal framework: Principles of administrative law and statutory appeal availability permit relegation to alternative remedies; ordinarily courts require exhaustion of statutory remedies before entertaining writs under Article 226/227, unless exceptional circumstances render the alternative remedy inadequate or unavailable. Precedent Treatment: The Court declined to insist on exhaustion of the statutory appeal remedy in this case, treating the department's insistence on alternative remedy as not efficacious given the litigation history and the finality of the appellate order in the petitioner's favour. The Court applied established discretionary principles for entertaining writs despite available alternatives. Interpretation and reasoning: The Court examined the chequered two-decade litigation history, the sequence of orders culminating in CESTAT's favourable and unassailed order (29.06.2021), and the fact that a further departmental rejection repeatedly raised the same limitation point already adjudicated. Relegating the petitioner to another round of statutory appeals would only perpetuate harassment and hardship and would be futile since the point had been finally determined by the CESTAT. In these circumstances the Court held that the alternative remedy was not efficacious and that entertaining the writ petition was justified to do complete justice without subjecting the petitioner to further needless litigation. Ratio vs. Obiter: Ratio - Where the identical legal issue has been finally determined in favour of the claimant by an appellate tribunal and is not under challenge, insisting on exhaustion of alternative statutory remedies may be refused as futile and oppressive; a writ may be heard on merits. Obiter - Not a general dispensation to bypass statutory remedies in every case; limited to exceptional, protracted, and conclusively adjudicated circumstances. Conclusions: The writ petition was held maintainable and was heard on merits; the Court rejected the department's preliminary objection based on availability of alternative appeal because the appeal mechanism would be ineffective and would compound hardship. Issue 3 - Entitlement to interest as compensation for retention and use of funds during prolonged litigation Legal framework: Principles permitting award of interest on refunds where public authorities have retained tax/duty refunds improperly or for unreasonable periods; interest serves to compensate for deprivation of use of money and to deter unjustified delays by revenue authorities. Precedent Treatment: The Court exercised its equitable and remedial jurisdiction to award interest at a specified rate (12% p.a.) from the date of the first refund application (19.02.2018) until actual payment, treating the award as necessary compensation for the hardship and arbitrary retention of funds. The decision followed established judicial practice that interest may be awarded where a statutory refund is due but unreasonably withheld. Interpretation and reasoning: The Court noted that the department had repeatedly retained and enjoyed the benefit of the petitioner's monies over an extended period, forcing the petitioner to pursue relief through multiple forums for many years. Given that the entitlement had been finally adjudicated in favour of the petitioner, the Court found it appropriate to award interest as compensation for unjust hardship and as a measure to effectuate restitution. The interest rate chosen (12% p.a.) and the computation period (from first refund application to date of payment) were directed as just and proportionate in the circumstances. Ratio vs. Obiter: Ratio - Where an unassailed appellate order establishes entitlement to refund and the department has retained funds for an extended period, the Court may award interest as compensation from the date of the first refund application to the date of payment. Obiter - Specific rate (12% p.a.) and period chosen reflect the facts of this case; different facts may warrant different rates or periods. Conclusions: The Court awarded interest at 12% per annum on the refund amount from 19.02.2018 until payment, and directed payment of the refund plus interest within six weeks. Interrelationship and final disposition Legal synthesis: The Court anchored its relief on three linked propositions - (a) a final and unappealed appellate order establishing entitlement and limitation is binding and precludes inconsistent departmental action; (b) exceptional, protracted litigation and conclusiveness of the prior adjudication justify bypassing further statutory appeals and permit adjudication by writ; and (c) retention of funds during such litigation attracts compensatory interest. Final conclusion (ratio of the judgment): The departmental order rejecting the refund on limitation grounds was quashed; the refund amount is payable with interest at 12% p.a. from the date of the first refund application until payment; the writ petition succeeds and is allowed on these terms. All ancillary applications are disposed of accordingly.