By TIOL News Service

AHMEDABAD, AUG 07, 2013: NETIZENS may think it is obvious. But the fact is that the department is not very liberal when it comes to paying interest on delayed refunds. Every time, the assessee has to knock the doors of Tribunal or High Court for getting interest on delayed refunds. This is yet another case where the assessee had to approach the High Court for interest on delayed refund.

The petitioner-company was searched by the officers of Preventive Unit and it was alleged that the appellant had sold Draw Twisted Yarn (dutiable) in the guise of Twisted Yarn (exempted). The petitioner deposited cheques for Rs 20 lakhs towards duty under protest.

A show-cause-notice was issued to the petitioners for alleged removal of DTY, demanding excise duty of Rs.1,40,21,719/-. The petitioners, lodged a refund claim of Rs.20 Lacs paid under protest as there was no reference of this deposit in the show-cause-notice. This request of the refund claim was turned down by the Deputy Commissioner of Central Excise.

The order of refusal of the refund of Rs.20 Lacs was challenged before the Appellate Tribunal ( after Commissioner (Appeals)). Simultaneously, in the appeal against the demand of duty, the Tribunal waived pre-deposit of the duty and penalty on condition that the petitioners do not pursue the refund claim during the pendency of the appeal. Finally the Tribunal allowed the appeal of the assessee by setting aside the demand of duty and penalty on the assessee.

A request was made by the petitioners to sanction the refund of Rs.20 Lacs with interest. Such amount was refunded to the petitioner by cheque of February 4, 2004, however, no interest was paid nor was any reference made in respect of the same. It is urged before the High Court that the petitioners are entitled to interest on the said amount of Rs.20 lacs.

After hearing both sides, the High Court held:

The amount of Rs.20 Lacs had been deposited by the petitioners during the course of investigation towards the duty on Twisted Yarn before the Tribunal. The amount of predeposit was not insisted upon the by the Tribunal as the undertaking was given by the counsel of the appellant herein not to pursue the refund claim till the pendency of appeal and thus, it is apparent that the Tribunal treated such amount of Rs.20 Lacs as predeposit for the purpose of entertaining the appeal.

Moreover, in the order dated October 31, 2000 passed by the Commissioner, it confirmed the demand of duty and imposition of penalty, however, the same was set aside eventually by the Tribunal vide its order on September 3, 2001. The department, therefore, was liable to refund the amount of deposit which was treated and virtually considered as pre-deposit by the Tribunal.

The Apex Court in the case of Commissioner of Central Excise, Hyderabad Vs. I.T.C. Ltd. (2004-TIOL-112-SC-CX-LB), has held that in the event of refund of any pre-deposit when a question arises of giving interest on the delayed refund of pre-deposit, as provided under the Draft Circular by CBEC & the payment of interest on such delayed refunds beyond three months would require the payment of interest and the same is to be 12% per annum. Period of three months commences from the date of final disposal of the dispute between the parties. The Circular:802/35/2004 dated 08.12.2009 if is also examined, it relates to return of deposit made as per the direction of the Tribunal and it is specified therein that the deposit needs to be returned within three months of the disposal of the appeal.

In the instant case, application for refund was filed by the petitioner on March 29, 2000. However, the amount claimed as refund being the duty paid and continued to lie as pre-deposit. The Tribunal decided in favour of the present appellants on September 3, 2001, and also further held that payment of interest would start running from September 3, 2001. The Tribunal while so ordering to set aside the order of the Commissioner, ordered to refund the said amount. Any delay having been occasioned in refunding the amount beyond the period of thee months, would attract interest. The refund of amount considered as predeposit would be at par with the refund of duty and the interest would be payable on such pre-deposit, as is also clear from the judgment of the Apex Court in the case of Commissioner of Central Excise Vs. I.T.C. Limited.

(See 2013-TIOL-608-HC-AHM-CX)