The Meghalaya High Court has held that interest shall be allowable to the assessee on the delayed refunds from the Central Excise Department on the deposit made “under protest”.
The case revolved around the investigation initiated by the Central ExciseDepartment against the respondent assessee, M/s Green Valliey Industries Pvt Ltd on the allegation of an excess claim of Cenvat credit.
The assessee made a deposit of Rs. 94 lakhs under protest, even before any Show Cause Notice (SCN) or demand was issued to them.
After the adjudication process, it was determined that the respondent was liable to refund Cenvat credit to the extent of Rs. 97 lakhs.
The assessee challenged this order before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), which upheld the demand for excess cenvat credit for about Rs. 16 lakhs.
The CESTAT found that, after accounting for interest and penalty, the Department owed approximately Rs. 78 lakhs to the respondent out of the initial deposit of Rs. 94 lakhs.
The assessee contended that since the initial deposit was made under protest and was not related to any interest or duty, it should attract interest on the refund amount.
Section 11B of the Central Excise Act, 1944, which governs the payment of interest for the refund of duty or interest, was at the center of the legal argument.
The Department, relying on judgments of the Delhi High Court and certain notifications, claimed that the deposit must be understood as made on account of duty and hence, the bar under Section 11B of the Central Excise Act, 1944 would apply, disallowing interest.
The CESTAT ruled in favour of the assessee. It was held that the refund was not on account of any duty or interest on duty, thereby not attracting the implied bar under Section 11B of the Central Excise Act, 1944.
Consequently, the CESTAT found that the respondent was entitled to interest on the refund amount. Additionally, the bench referred to several judgments of the Supreme Court, High Courts and its own to determine the interest rate and settled on 12 per cent per annum as the appropriate rate.
Aggrieved by the order of CESTAT, the Department sought a review or correction of the order but did not succeed. Subsequently, the interest amount remained unpaid, and thus the department filed an appeal before the High Court.
The appellant revenue, the Principal Commissioner of Central Goods and Service Tax was represented by Dr. N Mozika and Ms. K Gurung while the respondent assessee was represented by Mr. Kanodia.
The division bench comprising Chief Justice Sanjib Banerjee and Justice W. Diengdoh emphasised that the deposit made by the respondent assessee was not linked to any duty or interest and, therefore, the bar on interest as per Section 11B of the Central Excise Act, 1944 did not apply.
Moreover, the court supported the 12 per cent per annum interest rate determined by the CESTAT, relying on sound reasoning and precedents.
The bench declined to address directly, the Department’s contention about interest on interest, stating that interest is a mode of compensation and cannot always be withheld even in cases of delayed payment.
The bench held that the assessee is entitled to interest on the delayed refunds received from the Central Excise Department on the deposit made by the assessee “under protest”.
The court directed the Department to make the payment of the interest due within four weeks from the date of the judgment, failing which the assessee would be entitled to pursue further legal remedies available under the law, reaffirming the principle that interest on refunds should be granted to compensate for the loss of funds held by the Department.
In result, the High Court of Meghalaya dismissed the Department’s appeal and upheld the decision of CESTAT, directing the Central Excise Department to pay interest to assessee on the delayed refund of the deposit made by the assessee “under Protest”.
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