Recently, the issue of interest to be paid by revenue on delayed refund came before the Bombay High Court, wherein Hon’ble High Court has upheld CESTAT order allowing interest on refund sanctioned where principal amount was refunded consequently to HC order under Section 11BB of Central Excise Act, 1944 (“the Excise Act”) from expiry of 3 months from date of receipt of application for refund till the date the principal amount was paid back to assessee.
Facts & Background:
- M/s. Alfa Packaging (“the respondent”) is engaged in the manufacture of cosmetic shampoo falling under Chapter 33 of the Central Excise Tariff Act, 1985 (“the Excise Tariff Act”). The Revenue was of the view that the cosmetic shampoo has to be assessed to duty under the Maximum Retail Price (“MRP“) based assessment under Section 4A of the Excise Act whereas, as per respondent the assessment had to be done on the transactional value of the cosmetic shampoo under section 4 of the Excise Tariff Act.
- The assessment being made on the provisional basis on MRP based assessment for the period August 10, 1998 to October 31, 1998. Later, it was finalized that valuation is to be based on transactional value. This lead to the respondent being entitled to refund of ₹ 49.17 lakhs for which he filed an application on January 18, 1999.
- The CESTAT rejected the claim for refund on grounds of unjust adjustment. On appeal to Gujrat HC vide order dated March 24, 2011, held that there was no enrichment and granted the refund to the assessee.
- Revenue refunded the principal amount but did not pay interest under Section 11BB of the Excise Act. This led to the assessee demanding interest from the Revenue for April 18, 1999 to September 20, 2012 under Section 11BB of the Excise Act. The Authorities rejected the claim for interest.
- In an appeal, CESTAT while relying on Supreme Court ruling in Ranbaxy Laboratories LTD v. UOI ((2011) 273 ELT 3), held that the assessee is entitled to interest as claimed from April 19, 1999, 3 months after the date of the refund application till grant of refund.
- Revenue appealed to the High Court contending that since the principal amount which was granted as the refund is pending consideration before Supreme Court, the grant of interest could await the final decision of the Supreme Court.
Issue Involved:
Whether the Tribunal was right in allowing the interest on refund sanctioned when the original issue is pending for decision before the Hon’ble Supreme Court in SLP No. 2672/2012 filed by the department against the Hon’ble High Court’s order dated March 24, 2011 as well as the order dated September 20, 2012 sanctioning the said refund claim is also challenged by the Department before the first Appellate Authority?
Held:
The Hon’ble High Court of Bombay vide Appeal No. 81 of 2019 dated June 18, 2019, held that liability of interest commences after 3 months of the refund application, if the refund is not made within 3 months from the date of application for refund and thus, it runs along with the principal amount.
Further the High Court stated that “Mere pendency of the appeal before the Apex Court would not justify the Revenue ignoring the statutory provisions of the Act namely Section 11BB of the Act. This it has to comply”
Citation: [The Commissioner of Central Goods and Service Tax & Central Excise, Daman v. Alfa Packaging (2019 (6) TMI 1142 – Bombay High Court)]