Interest on delayed refund of pre-deposit – period for which petitioner is entitled to interest on pre-deposit of delayed refund was same as in case of ITC Ltd - parity demands that petitioner is also entitled for interest @ 12% per annum

 BEFORE we go to the case on hand, let us take a look at the Board Circular in question and sections 11BB and 35FF of the CEA, 1944 –

++ “ 802/35/2004-CX , Dated: December 8, 2004

F.No.387/5/2001-JC

Subject: Return of deposits made in terms of Section 35F of the Central Excise 1944 and Section 129E of the Customs Act, 1962.

Reference earlier instructions on the above subject and looking to the instances arising out of non-implementation of the judicial orders, the Board has reason to review and reiterate the earlier Circulars on the subject of non-implementation of orders of CESTAT or any Final Authority in relation to returning pre-deposits made as per directions of CESTAT or any other Final Authority in terms of Section 35F of the Central Excise Act, 1944 & Section 129E of the Customs Act, 1962. The Board has taken a strict view with regard to non-returning of such deposits.

2. As we are all aware the CESTAT has in a number of such cases awarded interest on pre-deposits where its orders have not been implemented and the Department had challenged this and filed Civil Appeals in the Supreme Court.

3. The Board has noted the observations of the Hon'ble Supreme Court in its order dated 21.9.2004 and has decided that pre-deposits shall be returned within a period of three months of the disposal of the appeals in the assessee's favour.

4. Accordingly, the contents of the Circular No. 275/37/2000-CX.8A dated 02.01.2002, as to the modalities for return of the pre-deposits are reiterated. It is again reiterated that in terms of Hon'ble Supreme Court's order such pre-deposit must be returned within 3 months from the date of the order passed by the Appellate Tribunal/Court or other Final Authority unless there is a stay on the order of the Final Authority/CESTAT/Court, by a superior Court.

5. x x x

6. x x x

7. x x x

8. This issues with the approval of Chairman/Member(L&J), CBEC.

9. x x x.”

Incidentally, the Supreme Court order dated 21.09.2004 referred in the Circular is the case of Commissioner of Central Excise vs. ITC Limited (2004-TIOL-112-SC-CX-LB) and wherein it is inter alia held as under –

“The issue in this appeal and in several other appeals is whether the pre-deposit made as a pre-condition for the hearing of the appeal under the Central Excise Act, 1985 was, on the assessee being ultimately successful, refundable to the assessee with interest. The learned Solicitor General has taken instructions and has stated before this Court that the Central Board of Excise & Customs proposes to issue a circular in connection with the payment of interest on all such pre-deposits. A draft copy of the proposed circular has been handed over to this Court. Having regard to the contends of the draft circular we direct compliance with the final order impugned before us and payment of interest in terms of the draft circular. The draft circular shall be appended to and the contents form part of this order. The appeal is disposed of. In view of this order any judgment of any High Court holding to the contrary will no longer be goods law.

x x x

SLP (C) No. 13814/2003 (C.A. NO. 7923/2004):

5. Leave granted. Following the order in CA. No. 44443/2001 the appeal is allowed in terms of the draft circular. The interest is directed to be paid for a period of three months at the rate of 12% p.a.”

As for the section 11BB of the CEA, 1944, the same was inserted by the Finance Act, 1995 w.e.f 26 th May, 1995 and is captioned “Interest on delayed refunds ”.

The interest rate specified u/s 11BB under various notifications were/is –

++ 22/95-CE(NT) dated 29.05.1995 – 15%

++ 41/2000-CE(NT) dated 12.05.2000 – 15%

++ 24/2001-CE(NT) dated 12.05.2001 - 9%

++ 17/2002-CE(NT) dated 13.05.2002 - 8%

++ 67/2003-CE(NT) dated 12.09.2003 - 6% [currently operational]

So also, section 35FF of the CEA, 1944 was inserted by the Finance Act, 2008 and the same reads thus –

“35FF. Interest on delayed refund of amount deposited under the proviso to section 35F. - Where an amount deposited by the appellant in pursuance of an order passed by the Commissioner (Appeals) or the Appellate Tribunal (hereinafter referred to as the appellate authority), under the first proviso to section 35F, is required to be refunded consequent upon the order of the appellate authority and such amount is not refunded within three months from the date of communication of such order to the adjudicating authority, unless the operation of the order of the appellate authority is stayed by a superior court or tribunal, there shall be paid to the appellant interest at the rate specified in section 11BB after the expiry of three months from the date of communication of the order of the appellate authority, till the date of refund of such amount .”

Now, to the case - The Petitioner is before the Calcutta High Court with an application seeking clarification and/or modification of its order dated 12.08.2011 passed in CEXA No.1 of 2008.

It is the case of the petitioner that it had preferred an appeal under Section 35G of the Central Excise Act, 1944 against the order dated June 15, 2007 passed by the CESTAT insofar as the Tribunal did not pass any direction for payment of interest in spite of holding that the petitioner was entitled to refund of the sum of Rs. 14.98 crore.

The appeal was allowed and the Court by its order dated 12.08.2011 held that in view of the decision of the Supreme Court in Commissioner of Central Excise vs. ITC Limited, (2004-TIOL-112-SC-CX-LB), interest was payable for the period commencing from three months after the final disposal of the matter till the date of refund.

Pursuant thereto, the petitioner requested the Assistant Commissioner of Central Excise to pay interest and also furnished a calculation in respect of the amount of interest @ 12% per annum amounting to Rs. 4,28,46,904/-.

Consequently, in September, 2011, the Asst., C.Ex. issued a notice requiring the petitioner to show cause as to why interest should not be paid @ 6% per annum in terms of the notification No.67/03-CE(NT) as the Board circular dated December 8, 2004 did not mention any rate of interest.

The petitioner, therefore, is before the High Court and seeks clarification and/or modification of its earlier order to specify the rate of interest for delay in refund of the amount paid by way of pre-deposit.

It is submitted that as rate of interest at 12% per annum was determined by the Supreme Court in the case of Commissioner of Central Excise vs. ITC Limited after taking into consideration a draft copy of the circular proposed by the Board, the notification bearing No.67/03-CE(NT) dated September 12, 2003 fixing @ 6% per annum for the purposes of Section 11BB of the Act relied upon the Assistant Commissioner has no relevance in the matter of delayed refund of pre-deposit made under Section 35F of the said Act. It is also submitted that the said notification was also in force when the Supreme Court decided the case of ITC Limited on 02.12.2004. Furthermore, the legislature brought in a separate provision by way of section 35FF with effect from May 10, 2008, subsequent to the material period involved viz. May 25, 2005 to October 11, 2007 and, therefore, the rate of interest determined in the case of ITC Limited would be applicable.

On behalf of Revenue, it is submitted that has been preferred against the Division Bench's order dated August 12, 2011 along with a stay application and the same is pending for hearing before the Supreme Court and in view of the fact that the matter is subjudice the present application is premature and not maintainable; that prior to insertion of Section 35FF there was no provision for payment of interest on deposits made under Section 35F of the said Act.

It is also submitted that Section 11BB was amended on 26.5.1995 to introduce payment of interest for delayed refunds and as provided under Section 11BB of the said Act, the Central Government, being the only authorised authority has fixed payment of interest @ 6% per annum under the Notification No.67/2003-CE(NT) dated September 12, 2003 and, therefore, any rate above 6% per annum cannot be claimed by the appellant; that the respondent had already paid interest @ 6% per annum amounting to Rs. 2,14,23,452/- to the appellant.

The High Court observed –

“…It has been pointed out to us that though the Court had directed the respondent to pay interest to the appellant in terms of the aforesaid circular the petitioner has approached the Assistant Commissioner who found that the petitioner is entitled to interest @ 6% per annum and not 12 % per annum as awarded in the judgment of the Supreme Court in the case of Commissioner of Central Excise vs. ITC Limited (supra) which has been held to be applicable to the petitioner's case.

We have no hesitation to come to the conclusion that the Revenue is trying to take advantage of the fact that this Court while referring to the circular did not mention the rate at which interest was to be paid to the petitioner considering the period for which interest was payable by the Revenue to the petitioner i.e. from May 25, 2005 up to October 11, 2007 i.e. for about 870 days.

The decision of the Supreme Court in the case of Commissioner of Central Excise vs. ITC Limited (supra) as regards refund of amount deposited under Section 35F was governing the field as the Supreme Court has upheld the direction for payment of interest and quantified it to be @ 12% per annum. The issue before the Supreme Court was whether the pre-deposit made as a pre-condition for the hearing of appeal under the Central Excise Act, 1944 was, on the assessee being ultimately successful, refundable to the assessee with interest as there was no provision in the Central Excise Act for payment of interest on such refund. It is in the course of hearing before the Supreme Court that the Learned Solicitor General after taking instructions made a statement that the Central Board of Excise and Customs proposes to issue a circular in connection with the payment of interest on all such pre-deposits. At the time a draft copy of the proposed circular was handed over to the Supreme Court there was no rate of interest specified in the proposal and, therefore, the Supreme Court awarded interest @ 12% per annum. Therefore, when this Court directed the respondent to pay interest to the appellant in terms of the circular bearing No.802/35/204-CX dated December 8, 2004 on the pre-deposit of the delayed refund within two months from today it has to be construed that this Court meant the rate of interest which was awarded by the Supreme Court in the case Commissioner of Central Excise vs. ITC Limited which was the rate quantified by the Supreme Court in absence of any statutory provision in the said Act.

Therefore, in view of the fact that the period for which the petitioner is entitled to interest on the pre-deposit of the delayed refund was the same as in the case of Commissioner of Central Excise vs. ITC Limited (supra) parity demands that the petitioner is also entitled for interest @ 12% per annum.

In so far as the contention of the Revenue that the Central Government is the only authority to fix the rate of interest and that Section 35FF was brought in by providing rate of interest on payment of pre-deposit delayed refund and quantified the rate of interest to be the same as in Section 11BB would not apply to the petitioner's case as Section 35FF has been introduced in the Act by way of an amendment inserted with effect from May 10, 2008 by Section 85 of the Finance Act, 2008 (18 of 2008). Therefore, we clarify that the petitioner is entitled to interest @ 12% per annum on the amount of refund. We direct that such interest shall be paid by the respondent/Revenue within two months of the date of this order.”

The application was disposed of accordingly.