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Bombay High Court: Section 11BB of the Central Excise Act does not distinguish between intentional and unintentional interest payment delays
Facts and Background:
Petitioner is a corporation that provides support services to its overseas affiliates. In addition, under Rule 3 of the CENVAT Credit Rules, 2004, Petitioner receives numerous input services and receives credit for service tax paid. 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, the Petitioner's services qualify as exports of service.
As a result, Petitioner pays no service tax on the output services that are exported. As a result, CENVAT credit for service tax paid on input services accumulates. According to Rule 5 of the CENVAT Credit Rules, Petitioner is entitled to a return of the service tax credit paid on input services that were not used.
Finally, a ruling was issued that sanctioned the refund amount in part while rejecting it in part. The Petitioner filed an appeal for the refund claim that was partially denied. As a result, the Appellate Authority issued an order granting the Petitioner's return claim. The Petitioner argued that it was entitled to interest on delayed refund payments under Section 11BB of the Central Excise Act, 1944, as amended by Section 83 of the Finance Act, 1994, because the refund amounts were sanctioned more than three months after the refund applications were filed.
Arguments:
The Petitioner's learned counsel argued that payment of interest under Section 11BB of the Central Excise Act, 1944 is required in all 19 refund applications filed by the Petitioner because the refund claims were approved significantly later than the three-month deadline.
As a result, Petitioner is entitled to interest on a first-come, first-served basis. On the other hand, learned counsel for the Respondents argued that the return to the Petitioner was not delayed on purpose. Refund requests are approved after a personal hearing and a thorough examination of the Petitioner's whole file, which takes time. There is no need to pay interest because it was not done on purpose.
Court’s observations:
After consulting Section 11BB, the Court determined that if any duty ordered to be repaid to an applicant is not refunded within three months of receipt of the application, interest should be charged at a rate not less than 5% and not more than 30% per annum, as determined by the central government.
The provisions of those Sections of the Central Excise Act applicable to service tax as they relate to a duty of excise were also mentioned in Section 83 of the Finance Act of 1994. The Central Board noted in a circular dated October 1, 2002, that any refund sanctioned beyond the period of three months is automatically subject to Section 11BB of the Central Excise Act.
The Supreme Court clarified in Ranbaxy Laboratories Limited vs. Union of India, (2011) 10 SCC 292, that the obligation to pay interest under Section 11BB of the Central Excise Act begins three months after the date of receipt of an application for a refund under Section 11B(1), not three months after the date on which the order of refund is made. 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 both cited. In this case, the refund orders were issued after three months had expired since the refund applications were received.
The refund claim was received on June 29, 2009, however, the return order was issued on February 4, 2010. As a result, the delay is noticeable. The respondent's claim that the delay was inadvertent is dismissed because Section 11BB makes no distinction between deliberate and unintended delays. Non-granting of interest in such a circumstance would be considered a failure to perform a statutory duty, as it is mandated by the statute.
Judgement:
The writ petition was allowed. The Petitioner will receive interest under Section 11BB of the Central Excise Act, 1944 on the amounts refunded to it.
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