UNION OF INDIA & ANR. Vs. SHREEJI COLOUR CHEM INDUSTRIES
ARIJIT PASAYAT, MUKUNDAKAM SHARMA
Central Excise Act
Central Excise Act, 1944 - s.11BB - Interest for delayed refund of amount payable under the Act and the Rules - Entitlement to - Held: On facts, assessee entitled to interest from 12th April, 2004 to 26th August, 2004 - Claim of assessee for equitable interest, however, not tenable, since assessee made no written demand therefor - Central Excise Rules, 1944 - r.173L.
Respondent claimed refund of amount payable under the Central Excise Act, 1944 and the Central Excise Rules, 1944. The claim was rejected by the Assistant Commissioner and the Commissioner, but upheld by the Appellate Tribunal.
Respondent was subsequently sanctioned refund on 27th August, 2004. Earlier, on 12th January, 2004, Respondent had filed application claiming statutory interest for delay in refund. The High Court granted interest at the rate of 9% w.e.f. the first day on which the Asstt. Commissioner rejected the prayer for refund.
Aggrieved, Appellant contended before this Court that interest became payable only after three months from the date of application for interest. Appellant also contested claim for equitable interest by the Respondent.
, , 2008(9 )SCC515 , 2008(12 )SCALE436 , 2008(10 )JT363
Partly allowing the appeal, the Court
HELD: In terms of s.11BB (1) of the Central Excise Act, 1944, Respondent-assessee is entitled to interest from 12th April, 2004 to 26th August, 2004. As regards claim of interest on equitable ground, a written demand therefor is imperative. In the instant case no such written demand was made. [Paras 9,10] [507-C & D]
Modi Industries Ltd., Modinagar & Ors. v. Commissioner of Income Tax, Delhi & Ors. [1995 (6) SCC 396] and Clariant International Ltd. v. Securities and Exchange Board of India, 2004 (8) SCC 524 - relied on.
Sandvik Asia Ltd. v. Commissioner of Income Tax I, Pune and Ors. [2006 (2) SCC 508] - referred to.
Case Law Reference
2006 (2) SCC 508 referred to Para 3
1995 (6) SCC 396 relied on Para 7
2004 (8) SCC 524 relied on Para 8
Naresh Kaushik, Asha G. Nair and B. Krishna Prasad for the Appellants.
Dayan Krishnan, Ankul Saigal, Bina Gupta and Gaurav Singh for the Respondent.
Judgment Made On 15/09/2008
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. OF 2008
(Arising out of S.L.P. (C) No.2527 of 2007)
Union of India & Anr. ...Appellants
Shreeji Colour Chem Industries ...Respondent
Dr. ARIJIT PASAYAT, J.
1. Leave granted.
2. Challenge in this appeal is to the judgment of a Division
Bench of the Gujarat High Court directing grant of interest to
the respondent for alleged delayed refund of amount payable
under Central Excise Act, 1944 (in short the `Act') and Central
Excise Rules, 1944 (in short the `Rules').
3. Background facts are undisputed and are essentially as
Refund was claimed by the respondent before the
Assistant Commissioner, Central Excise and Customs Division
IV, Vadodara, for refund of Rs.2,50,494.31. The applications
which were filed under Rule 173L of the Rules were rejected
by the Assistant Commissioner by order dated 24.7.1991.
Being aggrieved by the said order, respondent preferred an
appeal before the Commissioner of Appeal, Mumbai who
remitted the matter for de novo consideration. After hearing
the respondent, the said applications were again rejected.
Respondent again preferred an appeal on 21.5.1996 before the
Commissioner of Appeal which was dismissed by order dated
31.8.1998. Being aggrieved by the said order, the respondent
preferred an appeal before the Customs Excise and Gold
Control Appellate Tribunal West Regional Bench (in short the
`CEGAT'). By order dated 25.11.2003 CEGAT allowed the
appeal and inter alia held as follows:
"I find no reason to reject the claims of
refund under Rule 173L amounted to
Rs.2,50,454/- in all. The same should be paid
to the appellant without delay."
The respondent filed an application before the Assistant
Commissioner on 12.1.2004 requesting for refund of the
amount along with statutory interest which became payable
from 26.8.1995. By order dated 27.8.2004 the Deputy
Commissioner sanctioned the refund of Rs.2,50,394/-.
A writ petition was filed against the said order dated
27.8.2004 praying for grant of interest. The High Court
directed grant of interest with effect from 24.7.1991 i.e. the
first day on which the Assistant Collector rejected the prayer
for refund. It is to be noted that Section 11 BB of the Act was
introduced with effect from 26.5.1995. The High Court by the
impugned order directed grant of interest as per the provisions
of Section 11 BB of the Act. Though in the original order
paras 12 & 17 it was noted that the respondent had a right to
get the amount of interest within two months from 21.5.1996,
and entitled to interest at the rate of 9% p.a. for the period of
three months commencing from 21.5.1996, it was
subsequently corrected by order dated 15.6.2006 substituting
the date 24.7.1991 for 21.5.1996. In other words according to
the High Court the respondent was entitled to interest at the
rate of 9% from 24.7.1991 irrespective of the date when
Section 11 BB was inserted. The High Court primarily relied
on a decision of this Court in Sandvik Asia Ltd. v.
Commissioner of Income Tax I, Pune & Ors. [2006(2) SCC
4. Learned counsel for the appellant submitted that the
High Court has clearly lost sight of the fact that after
introduction of Section 11 BB the position relating to grant of
interest has got crystalised and the grant of relief from the
first date on which the application for refund was rejected
cannot be sustained. It is submitted that Section 11BB
makes the position clear that only after three months from the
date of application interest becomes payable. Reference is
also made to Section 11(d) of the Act. It is pointed out that
the prayer of the respondent should not have been accepted
because Rule 173L was not in existence and the prayer of the
assessee was not in terms of Section 11BB.
5. It is submitted that in any event in case of statutory
interest question of any equitable interest is not applicable.
6. Learned counsel for the respondent on the other hand
submitted that equitable interest is also payable. With
reference to the proviso to Section 11(d)(1) and 11(d)(2) it is
submitted that the application which was filed in terms of
Rule 173L has to be deemed to be an application under
Section 11(d). It is pointed out that the Deputy Commissioner
in its order has referred to the earlier refund claims.
7. A three-Judge Bench of this Court in Modi Industries
Ltd, Modinagar & Ors. v. Commissioner of Income Tax, Delhi
& Ors. [1995(6) SCC 396] dealt with the position relating to
grant of statutory interest. In paras 58 & 59 it was inter alia
observed as follows:
"58. The argument, which was upheld in some
of the cases now under appeal, is that it will
be inequitable if the assessee does not get
interest on the amount of advance tax paid,
when the amount paid in advance is refunded
pursuant to an appellate order. This is not a
question of equity. There is no right to get
interest on refund except as provided by the
statute. The interest on excess amount of
advance tax under Section 214 is not paid
from the date of payment of the tax. Nor is it
paid till the date of refund. It is paid only up to
the date of the regular assessment. No interest
is at all paid on excess amount of tax collected
by deduction at source. Before introduction of
Section 244(1-A) the assessee was not entitled
to get any interest from the date of payment of
tax up to the date of the order as a result of
which excess realisation of tax became
refundable. Interest under Section 243 or
Section 244 was payable only when the refund
was not made within the stipulated period up
to the date of refund. But, if the assessment
order was reduced in appeal, no interest was
payable from the date of payment of tax
pursuant to the assessment order to the date
of the appellate order.
59. Therefore, interpretation of Section 214
or any other section of the Act should not be
made on the assumption that interest has to
be paid whenever an amount which has been
retained by the tax authority in exercise of
statutory power becomes refundable as a
result of any subsequent proceeding."
8. In Clariant International Ltd. v. Securities and Exchange
Board of India [2004(8) SCC 524] it was observed as follows:
"30. Interest can be awarded in terms of an
agreement or statutory provisions. It can also
be awarded by reason of usage or trade having
the force of law or on equitable considerations.
Interest cannot be awarded by way of damages
except in cases where money due is wrongfully
withheld and there are equitable grounds
therefor, for which a written demand is
31. In absence of any agreement or statutory
provision or a mercantile usage, interest
payable can be only at the market rate. Such
interest is payable upon establishment of
totality of circumstances justifying exercise of
such equitable jurisdiction. (See Municipal
Corpn. of Delhi v. Sushila Devi [1999(4)SCC
317], SCC para 16.)"
9. As was observed in para 30 referred to above, if the claim
of interest is on equitable ground, a written demand therefor
10. In the instant case admittedly no such written demand
has been made. In terms of Section 11BB (1), the respondent-
assessee is entitled to interest from 12th April, 2004 to 26th
August, 2004. The quantum shall be worked out and the
amount shall be paid within a period of four weeks. The order
of the High Court is accordingly modified and the appeal is
allowed to the aforesaid extend. No costs.
(Dr. ARIIT PASAYAT)
(Dr. MUKUNDAKAM SHARMA)
September 15, 2008