21 May 2121

When a refund is not paid within three months of the date of receipt of the application, the rigour of section 11BB of the Central Excise Act, 1944 steps in, requiring the payment of interest on the delayed refund - Bombay High Court

Case : Qualcomm India Private Limited v. Union of India and others Writ Petition No.1775 of 2020

Court : Bombay High Court

Bench : Justice Ujjal Bhuyan and Justice Milind N. Jadhav

Decided on : 21 May 2121

The Relevant Statutes

Article 226 of the Constitution of India

Section 11BB, 11B, 12A, 11B (1), 11B (2) of the Central Excise Act, 1944

Section 83 of the Finance Act, 1994

Central Excises and Customs Laws (Amendment) Act, 1991

Rule 3 of the CENVAT Credit Rules, 2004

Export of Service Rules, 2006

Rule 6A of the Service Tax Rules, 1994

Rule 3 of the Place of Provision of Services Rules, 2012

Brief Facts & Procedural History

1. Petitioner is a limited liability company formed under the Companies Act, 1956, with its registered office in Mumbai's Bandra Kurla Complex. Within the provisions of Chapter V of the Finance Act of 1994, the petitioner is in the business of providing support services principally to its overseas affiliates.

2. Petitioner obtains different input services to offer such services and claims credit for service tax paid on such services under rule 3 of the CENVAT Credit Rules, 2004. The petitioner's services were classified as exports of service under the former Export of Service Rules, 2006, as well as rule 6A of the Service Tax Rules, 1994, and rule 3 of the Place of Provision of Services Rules, 2012.

3. As a result, the petitioner paid no service tax on the output services that were exported. As a result, CENVAT credits for service tax paid on input services accumulated. According to rule 5 of the CENVAT Credit Rules, 2004, the petitioner, as a supplier of exportable output services, is entitled to a return of the service tax credit paid on unutilized input services.

4. Accordingly, between June 2008 and December 2014, the petitioner submitted 19 refund claims, each with accompanying documentation, requesting a return of utilized CENVAT credit under rule 5 of the CENVAT Credit Rules, 2004.

5. Following the petitioner's submission of the above-mentioned applications, the Assistant Commissioner, i.e., respondent No.3, issued several show-cause notices to the petitioner, requiring the petitioner to show cause why the refund claims of the petitioner should not be rejected, primarily because the input services had no nexus with the output services and thus were not eligible for a refund. Petitioner filed thorough answers in response to such show-cause notices, together with the required documentation.

6. The refund sanctioning authority issued initial orders in respect of the petitioner's refund claims, partially sanctioning and partially denying the return amount. Petitioner opted to challenge the orders partially denying the reimbursement claim to the appellate authority. In such situations, the appellate authority issued an order in appeal approving the petitioner's refund claim after the return sanctioning authority issued orders in original.

7. Following that, the petitioner got the return amounts as ordered. The return amounts, however, were sanctioned more than three months after the refund applications were filed. As a result, the petitioner argued that it was entitled to interest on late refund payments under section 11BB of the Central Excise Act, 1944, as amended by section 83 of the Finance Act, 1994, which applied to service tax. In such circumstances, the petitioner sent a letter to respondent No. 3 requesting that he provide interest at the rate of 6% per year on delayed refunds for the period after the expiration of the three-month term from the date of application to the date of actual reimbursement. The stated letter, however, received no answer. Respondent No. 3 was again requested by the petitioner in a letter to provide interest on the belatedly sanctioned refund amount for the period June 2008 to December 2014. Petitioner also attached a copy of a decision issued by the Central Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, in its case, giving interest on the late-granted refund sum.

8. Respondent No.3 notified the petitioner through a letter that no additional evidence demonstrating that the reimbursement was granted late had been presented. As a result, Judge stated that the letter could not be used to process the interest claim. However, in the stated letter, respondent No. 3 entirely ignored the petitioner's previous letter, claiming that the letter was only a continuation of the previous letter.

9. Despite the above, the petitioner repeated his request for interest on a delayed refund in a letter followed by a reminder. However, no contact from respondent No. 3's office has been received by the petitioner.

10. Consequently, the petitioner has filed a writ suit seeking the remedy described above.

The Issue(s) of the Case

Whether the petitioner entitled to interest on a delayed refund under Section 11BB of the Central Excise Act 1944, as amended by Section 83 of the Finance Act 1994?

The Observations of the Court/Commission

1. Honourable High Court of Judicature at Bombay observes that Section 11B (1) of the Central Excise Act, 1944 states that any person claiming a refund of any excise duty and interest, if any, paid on such duty may make an application for refund to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise in such form and such manner as may be prescribed before the expiration of one year from the relevant date. Documentary and other proof supporting the claim must be submitted with the application. Section 11B(2) of the Central Excise Act, 1944 states that if the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise is satisfied that the whole or any part of the excise duty and interest, if any, paid on such duty by the applicant is refundable, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise will refund the entire or any part of the duty and interest if any, paid on such duty by the applicant, he may issue an order for the money to be returned after that.

2. Honourable High Court of Judicature at Bombay also observes that it is self-evident that if any duty ordered to be refunded under section 11B (2) of the Central Excise Act, 1944 to any applicant is not refunded within three months of the date of receipt of the application under section 11B (1) of the Central Excise Act, 1944, that applicant will be charged interest at a rate not less than 5% and not more than 30% per annum, as determined by the central government by notification in the Official Gazette. The interest shall be computed for the period beginning three months after the date of receipt of the application and ending three months after the date of refund of the duty.

3. Honourable High Court of Judicature at Bombay also observes that Section 83 of the Finance Act of 1994 makes it plain that the provisions of those parts of the Central Excise Act listed therein apply to service tax in the same way as they apply to a charge of excise. Sections 11B and 11BB of the Central Excise Act, 1944 have been incorporated, and the provisions of those sections will apply to service tax.

4. Referring to the case of Ranbaxy Laboratories Limited Vs. Union of India, (2011) 10 SCC 292, the Supreme Court decided that section 11BB of the Central Excise Act, 1944 only applies once an order for refund has been issued under section 11B of the Central Excise Act, 1944, but that interest under section 11BB of the Central Excise Act, 1944 is due if the sum claimed has not been returned within three months from the date of receipt of the application for reimbursement. As a result, the only interpretation of section 11BB of the Central Excise Act, 1944 that can be reached is that interest under the said section becomes payable three months after receipt of the application under section 11B (1) of the Central Excise Act, 1944. It was said that it is a well-established legal principle that fiscal legislation must be interpreted rigorously; one must look only at what is stated in the relevant provision; there is nothing to be read in; nothing to be suggested, and there is no space for any intention. The Supreme Court clarified that the revenue's liability to pay interest under section 11BB of the Central Excise Act, 1944 begins three months after the date of receipt of an application for a refund under section 11B (1) of the Central Excise Act, 1944, not three months after the date on which the order of refund is made, based on the above provisions.

5. Referring to the case of Shroff United Chemicals Limited Vs. Union of India, 2011 (24) STR 17, is a case where a Division Bench of the Bombay High Court considered the foregoing two clauses, it was held that the applicant's right to interest on a delayed refund follows as a matter of law and is a mandate of the legislation after the essential criteria have been met.

The Decision Held by the Court/Commission

Honourable High Court of Judicature at Bombay held that given the foregoing considerations, the writ petition is granted. The sums returned to the petitioner would be subject to interest under section 11BB of the Central Excise Act, 1944. Respondents Nos. 2 and 3 must calculate the amount of interest due to the petitioner on the refund claims for the relevant periods, which must be paid to the petitioner within three months of receipt of a copy of this decision and order.

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