By TIOL News Service

MUMBAI, JAN 30, 2015: THIS is a Revenue appeal against the CESTAT order dated 05.04.2004 - 2004-TIOL-449-CESTAT-MUM.

The CESTAT had held that Section 11AB of the CEA, 1944 is prospective in operation and, therefore, Interest is payable only post September 28, 1996.

The substantial question of law framed by the High Court while admitting the Revenue appeal was -

"Whether on the facts of the case and in law, whether CESTAT was correct in law in deciding the appeal on the ground that section 11AB is prospective?"

Facts of the case need mention here -

+ The Assessee had cleared excisable goods valued at Rs.4,04,32,816/- for sale without following the Central Excise Act, 1944 and Rules framed thereunder in as much as no CE duty was paid. The period involved is February, 1995 to December, 1999.

+ A SCN came to be issued on 31.01.2000 demanding CE duty of Rs.15,36,350/-. Penal provisions u/s 11AC and interest u/s 11AB were also applied.

+ An o-in-o came to be passed on 08.11.2000 confirming the duty liability and imposing penalty and interest; which order was accepted by the assessee.

+ The assessee paid the duty amount along with the interest of Rs.10,62,682/- which was calculated by the department. However, subsequently they realized that the above calculation of interest was for the entire period whereas the interest was required to be calculated only for the period effective from 28.9.1996. Accordingly, they filed refund claim of Rs.5,51,380/- on 04.05.2001.

+ This claim was rejected by the Dy. Commissioner who ruled that the assumption of the assessee was incorrect inasmuch as the provisions of s.11AB enabled imposition of interest in orders of adjudication made after 28th September, 1996.

+ The Commissioner(A) held that the assessee could not have claimed refund at all since the o-in-o was not challenged by them.

+ Against this o-in-a, the appellant had filed an appeal before the CESTAT and the Bench had concluded that the issue is squarely covered by the judgment of the Supreme Court in the case of Markandy Prasad Radhakrishna Prasad Pvt. Ltd. - 2002-TIOL-381-CESTAT-KOL & Elgi Equipment Ltd. - 2002-TIOL-781-SC-CX. It was held that sections 11AB&11ACare prospective and, therefore, the Appellant is liable to pay interest only post 28th September 1996.

This order, as mentioned, has been challenged by the CCE, Mumbai-I before the Bombay High Court.

The appeal was decided recently.

It is the submission by the counsel for the Revenue that the Tribunal had lost sight of the fact that the claim for interest itself was untenable;that Section 11ABinvoked by the Assessee did not permit a claim for refund of any interest simplicitor; that no application seeking refund of interest amount paid, leaving out the duty component, was tenable; that the words in section 11B(1) "any person claiming refund of any duty of excise and interest, if any, paid on such duty" were substituted by Act 18 of 2008 w.e.f. 10th May 2008 and, therefore, the assessee could not have filed any application for refund. And finally, since the Assessee had not challenged the order-in-original dated 8th November 2000 but accepted it, the application for refund was untenable &should have been dismissed on this ground alone.

The respondent assessee submitted that the application for refund was scrutinised and the ground for rejecting was not the one now canvassed before the High Court. Since the ground now put forward was never raised during the course of the proceedings and right up to the Tribunal, it is not open for the Revenue to urge that the claim for refund itself was not maintainable or incompetent. Reliance is placed on the decision in Northern Minerals Ltd. - 2007-TIOL-601-HC-P&H-CX in this regard.

The High Court held -

++ We are in agreement that it is too late in the day for the Revenue to urge that the application was not maintainable.

++ The Revenue's pleas before us are in the nature of afterthought. We do not think that any time this objection was raised by the Revenue. We are, therefore, of the opinion that any larger question or controversy need not be gone into. Particularly, this Court has not admitted the Appeal on the question of law now raised by the Revenue.

++ The application of the Assessee was to seek refund of a sum erroneously recovered as interest and for the period prior to 28th September, 1996. Since the demand was for a period from February, 1995 to December, 1999, till 28th September, 1996, no interest could have been levied on the unpaid duty amount. In these circumstances, the application for refund could not have been rejected only on the ground that it was not maintainable.

++ The question of law that we have framed as substantial question of law has already been answered in series of decisions against the Revenue. The Tribunal has rightly placed reliance upon the language of section 11AB. It has also placed reliance upon coordinate Bench decision in the case of Markandy Prasad (supra). The Revenue has accepted the fact that the provision and as interpreted in the case of M/s. M. P. Tapes vs. Commissioner of Central Excise in CEGAT Order No. 1375 of 1997 dated 22nd April, 1997 lays down the correct law.

++ The provisions of section 11AB inserted w.e.f. 28th September, 1996 are in the nature of penal interest and would apply only to those cases where clearances were affected after 28th September, 1996, irrespective of the date of passing of the adjudication order.

Holding that the substantial question of law formulated by the Court cannot be answered in favour of the Revenue, the appeal was dismissed.

In passing: Incidentally, the Board had in its Circular 655/46/2002-CX, Dated: August 26, 2002 titled "Retrospective application of Section 11 AB of the Central Excise Act, 1944" clarified the issue beyond any doubt. Paragraph 7 reads -

But then, the field formations are rarely in a mood to abide by these. Nonetheless, we hope the matter rests here…

(See 2015-TIOL-233-HC-MUM-CX)