Union of India &
ANR. Vs. Shreeji Colour Chem Industries [2008] INSC 1561 (15 September 2008)
Judgment
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 Versus
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 follows:
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 508].
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 there for, for which a written demand is
mandatory.
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 is imperative.
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.
...........................................J.
(Dr. ARIIT PASAYAT)
...........................................J.
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