Bombay HC: Section 11BB of Central Excise Act Doesn’t Distinguish Delay of Interest Payment as Intentional or Unintentional

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Bombay High Court

The Petitioner prays to receive interest on the refund amount under Section 11BB of the Central Excise Act, 1944 and Section 83 of the Finance Act, 1994 from the Respondents.

Facts 

Petitioner is a company that is engaged in the business of providing support services to its foreign affiliates. In furtherance, Petitioner receives various input services and avails credit for service tax paid under Rule 3 of the CENVAT Credit Rules, 2004. The services provided by the Petitioner qualify as export of service under the Export of Service Rules, 2006 and Rule 6A of the Service Tax Rules, 1994, read with Rule 3 of the Place of Provision of Services Rules, 2012.

Hence, Petitioner does not pay any service tax on the output services so exported. This leads to the accumulation of CENVAT credit of service tax paid on input services. In terms of Rule 5 of the CENVAT Credit Rules, Petitioner is entitled to claim a refund of the credit of the service tax paid on the input services that remained unutilized. From June 2008 to December 2014, Petitioner filed 19 refund applications claiming refund of the same.

Ultimately, an order was passed which partially sanctioned and partially rejected the refund amount. The Petitioner appealed for the partially rejected refund claim. As a result of this, the Appellate authority passed an order allowing the refund claim of the Petitioner. However, as the refund amounts were sanctioned beyond three months from the date of filing of refund applications, the Petitioner claimed that it was entitled to interest on delayed payment of refund under Section 11BB of the Central Excise Act, 1944 made applicable to service tax vide Section 83 of the Finance Act, 1994.

Arguments

Learned counsel for the Petitioner submitted that payment of interest under Section 11BB of the Central Excise Act, 1944 is mandatory in all the 19 refund applications filed by the Petitioner as the refund claims were allowed much after three months receipt of the applications.

Therefore, Petitioner is entitled to interest as a matter of right. On the other hand, learned counsel for the Respondents submitted that there was no intentional delay in granting the refund to the Petitioner. Refund claims are sanctioned after a personal hearing and scrutinizing the entire relevant documents of the Petitioner, which takes time. As it was not intentional, there is no need to pay interest.

Court’s observations

The Court, after referring to Section 11BB, considered it evident that if any duty ordered to be refunded to any applicant is not refunded within three months from the date of receipt of an application, interest should be paid at such rate which is not below 5% and not above 30% per annum as may be fixed by the central government.

Section 83 of the Finance Act, 1994 was also mentioned, which states the provisions of those Sections of the Central Excise Act applicable concerning service tax as they apply concerning a duty of excise. In a circular dated 01.10.2002, the Central Board stated that Section 11BB of the Central Excise Act is attracted automatically for any refund sanctioned beyond the period of three months.

In the case of Ranbaxy Laboratories Limited Vs. Union of India, (2011) 10 SCC 292, the Supreme Court clarified that the liability to pay interest under Section 11BB of the Central Excise Act commences from the date of expiry of three months from the date of receipt of an application for a refund under Section 11B(1) and not on the expiry of three months from the date on which order of refund is made. The Case of Shroff United Chemicals Limited Vs. Union of India, 2011 (24) STR 17 and Amalgamated Plantations (P) Limited Vs. Union of India, 2013 (296) ELT 13 were also referred to. In the present case, the orders granting refund were passed after the expiry of three months from the date of receipt of the refund applications.

The refund claim was received in the office on 29.06.2009, but the refund order was passed on 04.02.2010. Hence the delay is visible. The respondent’s argument that the delay was not intentional is rejected as Section 11BB does not distinguish delay as intentional or unintentional. As it is a mandate of the statute, non-granting of interest in such a case would amount to a failure to discharge statutory duty

Judgement 

The writ petition is allowed. The Petitioner will receive interest under Section 11BB of the Central Excise Act, 1944 on the amounts refunded to it.

Click here to read the Judgement.


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