Delhi High Court: Mere Pendency of an Appeal/Order of Stay Would not Detract from Claiming Refund of Excise Duty

Delhi High Court: Mere Pendency of an Appeal/Order of Stay Would not Detract from Claiming Refund of Excise Duty

The Delhi High Court has observed that, mere pendency of an appeal or an order of stay that may operate thereon would not detract from the obligation of any person claiming a refund making an application as contemplated under Section 11B(1) of the Central Excise Act, 1944 within the period prescribed and computed with reference to the ‘relevant date’.

The division judge’s bench of Justices Yashwant Varma and Dharmesh Sharma observed, in light of the indubitable principle that an order of stay that may operate in an appeal does not efface the demand or the obligation of refund that may have sprung into existence.

“It merely places the enforcement of the order appealed against in abeyance. The order of stay would, in any case, be deemed to have never existed once the appeal comes to be dismissed,” added the bench.

Two writ petitions were filed which raised the common question of the date from which interest is leviable on an asserted delay in disbursal of refund under the Central Excise Act, 1944.

The petitioner argued that the interest is liable to run from the date when the refund is determined and would not be dependent on any application or other positive step being taken by an assessee.

The Central Excise Department asserted that, in light of the plain language of Section 11B read along with Section 11BB of the 1944 Act, the moving of an application is a prerequisite for computation of the date from which interest would be payable on a refund.

The Additional Commissioner confirmed the duty demand under Section 11A and held the petitioners liable to pay the duty along with interest in accordance with Section 11AB. The directions were framed for the confiscation of cash and the imposition of monetary penalties. The amount that had been deposited by the petitioners during the pendency of the SCN proceedings was also appropriated against the demands that had crystallized.

Aggrieved by the same, the petitioner preferred an appeal. The Appellate Authority allowed the appeal in toto. The Department preferred an appeal against that decision before the Customs, Excise, and Service Tax Appellate Tribunal, which ultimately came to be dismissed. Admittedly, while an interim order operated on that appeal, it was discharged once the appeal was dismissed by the CESTAT.

The assessee contended that once the original order had come to be set aside in appeal, they were obliged to refund the amounts that had been collected from the petitioner during the course of the investigation and the proceedings that were initiated. The obligation of the respondents to affect that refund could not be hinged on or made dependent upon an application being made by the petitioner, and since the action was merely consequential, it should have been initiated by the respondents of their own volition.

The respondent contended that, in terms of Section 11BB, interest is liable to be paid only if the refund is not affected within a period of three months from the date of receipt of an application made in accordance with Section 11B(1). The liability to pay interest on a refund would arise only if the same were affected three months after the making of an application for the same by the assessee.

The Court noted that the subject of interest on delayed refund which is governed by Section 11BB itself prescribes the starting point for payment of interest on delayed refunds to be the date when an application under Section 11B(1) is received.

“On a conjoint reading of Sections 11B and 11BB of the 1944 Act, therefore, we come to the irresistible conclusion that interest on delayed refund is clearly dependent upon the making of a formal application as stipulated by Section 11B of the 1944 Act,” the Court avowed.

The Court also found merit in the contention canvassed by the Respondent who had submitted that a refund of duty and interest paid thereon is liable to be viewed as distinct from a pre-deposit that may be made in compliance with Section 35F of the 1944 Act.

The Court opined that the language of Section 35FF is an embodiment of the manifest obligation of the respondents to refund the pre-deposit consequent to an order passed by the Appellate Authority notwithstanding an application having not been made by the depositor.

The bench concluded that Section 35FF thus, indicates that interest would commence from the date of the order of the Appellate Authority as distinct from the making of an application which is prescribed to be the starting point insofar as Section 11BB of the 1944 Act is concerned.

Accordingly, the Court disposed of the petition.