VIRCHOW LABORATORIES LIMITED, HYDERABAD. vs. THE COMMISSIONER O0FCUSTOMS AND CENTRAL EXCISE, HYDERABAD.
What did the High Court hold?
The High Court held that while the Customs Act, 1962, does not expressly provide for interest on interest, it is a settled law that when an amount is wrongfully collected or withheld without legal authority, the Revenue is bound to compensate the assessee. The Court referred to the Supreme Court's judgment in *Sondvik Asia Ltd.*, which held that forceful collection of interest cannot deprive the assessee of entitlement to interest on that portion, and compensation for delay is required even in the absence of a specific provision. The Court found that the interest of Rs. 31,52,256/- was forcefully collected and retained by the Revenue for a considerable period. Therefore, the Revenue was directed to pay interest at 7.5% from the date of the refund claim (June 2, 1997) to the date of actual payment (July 2, 2006). Additionally, the Revenue was directed to pay further interest at 6% per annum on the unpaid interest amount for the period from March 9, 2006, to November 29, 2011. However, the Court clarified that the appellant is not entitled to further interest on unpaid interest from November 29, 2011, onwards, as the matter was pending before the Court, and the Revenue should not be penalized for delays caused by judicial proceedings. The appeal was allowed.
What were the facts?
Virchow Laboratories Ltd. (the appellant) was directed by the Central Excise Superintendent to pay Rs. 31,52,256/- as interest for alleged violation of Customs Notification No. 203/92. Threatened with blocked exports, the appellant deposited the amount under protest on January 31, 1997. Subsequently, the appellant claimed a refund, which was refused by the Assistant Commissioner on June 2, 1997, who maintained the liability. The appellant appealed to the CESTAT, which held in Final Order No. 548/2006 that the appellant had not violated the notification and was not liable for the amount, directing a refund. The refund was issued on July 2, 2006, over nine years later. The Department refused to pay interest on this delayed refund, citing that the original amount was collected as 'interest' and not 'duty'. The appellant's appeal for interest on the delayed refund and further interest on unpaid interest was dismissed by the CESTAT in Final Order Nos. 576 & 577/2011.
What were the issues?
1. Whether the appellant is entitled to interest for the delayed refund of Rs. 31,52,256/- from June 2, 1997, to July 2, 2006, under Section 11BB of the Central Excise Act, 1944. 2. Whether the appellant is entitled to further interest on the unpaid interest amount for the period from July 2, 2006, onwards until actual realization. Assessee's contentions: The appellant argued that the amount was forcibly collected and wrongfully withheld by the authorities. Relying on the Supreme Court's decision in *Sondvik Asia Ltd. v. Commissioner of Income Tax*, the appellant contended that when excess tax or wrongfully withheld amounts are collected, the Department is bound to compensate the assessee, entitling them to interest on the delayed refund and further interest on unpaid interest. Revenue's contentions: The revenue argued that Section 11BB of the Act provides for interest on refund of the principal amount. However, since the amount in question was collected as interest under an amnesty scheme and subsequently refunded, no further interest is payable. The revenue also contended that it is a settled legal principle that interest on interest cannot be granted for the disputed period.
Which sections of the Income-tax Act were involved?
Section 11BB, Section 35G
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
The Court delivered the foltowing: JUDGMENT
-7 I ,/o i ,i1 IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAI) THE HON'BLE SRI JUSTICE P.SAM KOSHY AND THE HON'BLE SRI JUSTICE SUDDALA CHALAPATHI RAO CEA.No. 195 of2Oll DtzL.0,3..20/26 Between: Virchow Laboratories Ltd. .... Appellant and The Commissioner of Customs & Central Excise ...Respondent JUDGMENT: (Per the Hon'ble Sri .ftistic€ Sludddld Chdtdpolthl Rd,o)
The instant appeal has been filed against the common final order Nos.576 & 577 l20l1, dt. 17.08.2011, passed by the Customs, Excise & Servicc Tax Appellate Tribunal, South Zone Bench at Bangalorc (for short 'CESTATJ in Appeal No. E/ 1 124 / 2006. 2. The brief facts of the case are that the appellant is a company engaged in the manufacture and export of bulk
2 d.rugs; that in the middle of January , L997, the jurisdictional Central Excise Superintendent, directed the appellant to pay Rs.3 L,52,2561- alleging that the appellant had violated the customs Notification No.2O3192, dt.19.05 .L992 and was therefore, liable to pay interest as per the amnesw scheme arrnounced by the Director of Drawback uide letter DOF' No.605/ 140/95-DBK, dt.o3.0 1.1997. As the superintendent threatened to stop the export clearances, if the said direction was not comptied with on or before 31.01.L997, the appellant was forced to deposit Rs.31,52,256/- on 31.0L.1997 under protest. Subsequently, as the appellant was not liable to pay the said amount, it had filed a refund claim to the Jurisdictional Assistant Commissioner of Central Excise on 02.06.1997 and the Assistant Commissioner refused to refund the said amount stating that the appellant was liable to pay the said amount as interest for violating tl:e conditions of Customs Notification No.2 L3 ! 92, dt' 19'O5'L992'
Assailing the said order, the appellant had filed a'n appeal before the learned cESTAT by raising a question of law and fact as to whether the appeltant violated the conditions
3 envisaged under Notification, No.203 /lgg2-CUS, and whether the appetlant was liable to pay the said amount as interest to the Department for violation of the said notification.
The learned CESTAT uide Final Order No.54 g/2006, dt.09.03.2006 categorically held that the appellant is not bound by the Customs Notification No.2O3/92, dt. 19.05.1992 and that there are no violations committed by the appellant and further held that the amnesty scheme announced by the Director of Drawback will not apply to the appellant, and the learned CESTAT concluded that the appellant was not liable to pay any amount to the Department and directed the Department to refund the said amount to the appellant in accordance with law with an observation that if the amount is not paid within three (03) months from the date of receipt of the application for refund as and when made by the appellant, under Section 11BB of Central Excise Act, 1944 (for short ,the Act, 1944), the appellant becomes entitled to inrerest for the said period.
4
Further, pursuant to the learned CESTAT's Final Order No.548/20O6, though the appellant made refund application on O2.O6.Lgg7, the Assistant Cornmissioner refuirded the arnount of Rs.3 1,52,256 / -- onl..' on O2,.O7 .20A6, and the Depaltment refused to pav interest for the delay of refund for more tJ:an nine yeers from ttre c{ate the refund application, i.e., from 02.A6.rcg1 to 02.07.2006, stating that the said amount originally rvas collected as "interest" and not as "duQ/," and therefore, no irrtere:st cor:ld be grarrted on such amourtt, as it would amount to paying interest on interest.
Aggrieved by the refusal of payment of interest, the appellant filed an appeal before the Commissioner of Central Excise (Appeals) and the Commissioner, uide order dt.31.10.2006, rejected the clairn for interest to ttre appellant.
Aggrieved by the refusal order, dt.31 .1O.2006, the appellant then filed a further appeal before the learned CESTAT and in addition to claiming interest on the delayed refund from 02.06.1997 to 02.07.2006, the appellant also sought interest on the unpaid interest amount, by placing
5 reliance on the judgment of t].e Hon,lcle supreme court in the case of so,ndalk Asio, Ltd. o. commissioner of Income Taxt,. However, the learned CESTAT uide Finat order Nos. s76 and 577/2o11, dt.L7.o8.2o11, dismissed the appeal and rejected both the claim for interest on the delayed refund of the principal amount and the claim for further interest on the unpaid interest and'assailing the said orders of the learned CESTAT, the instant appeal is filed before this court under Section 35G of the Act, 1944. 8. Although several substantial questions of raw were raised in the appeal, the sum and substance of those questions, and the main issue t]lat requires consideration by this court whether the appellant is entitred. for interest for the delayed peiod from 02.06.1997 to 02.07.2006, and. atso further interest on such unpaicl interest from 02.07-20o6 onwards tilt the acfitar rearization?.
Heard sri Muthuma Rajendran, learned counsel representing Sri Karthik Ramana puttamreddy, for appellant and Sri A.Ramakrishna Reddy, learned Senior Standing | 2006 (1e6) ELT 2s7 (SC) { C.\ \^".
6 Counsel for the Central Board of Excise and Customs (CBEC) for respondent.
The learned counsel for the appellant contended that the amount of Rs.3 I,52,256 / - was forcibly collected by tl,e respondents-authorities on 31.Ol.lgg7, and was refunded only on 02.07.2006, after prolonged and multiple rounds of litigation, though the appellant is entitled for interest, the Department has refused to pay the same on erroneous views and facts.
By placing reliance on the judgment of the Honble Supreme Court in Sorndvik Asia Ltd's case(supra), it rvas contended by the learned counsel that when the assessee fails to pay the due amount, the department forcibly collects the duty and the interest thereon. It is contended that, in the instant case, though the assessee was not liable to pay the interest,. the Department forcibly collected the interest and when excess tax is collected or any amount is wrongfully withheld without authority of law, the Deparurnent is bound to compensate the assessee. On this basis, it was contended that t
7 /i ( I, the appellant is entitled to interest for the delayed refund of the amount that was forcibly collected and also to further interest on the said unpaid interest. ll . Per contra, Sri A. Ramakrishna Reddy, learned Senior Standing Counsel, contended that though Section l lBB of the Act provides for payment of interest on refund of the principal amount, admittedly, in the present case, since the amount in question was collected as interest under the amnesty scheme and was later refunded to the assessee, no further interest is pal,able on such amount. He further contended that it is a settled legal principle that interest on interest cannot be grnnted for the disputed period, and since the principal amount collected as interest has already been refunded, the appeal is not maintainable and is liable to be dismissed. lL We have given earnest consideration to the submissions of the learned counsel appearing on either side and perused thc record. I 2. I . Now that the main issue is, in the absence of any provision, rrvhether the assessee is entitled for the interest on 8 the derayed refund of the amount that was forcefulry collected by the reqlrcndents-authorities and whether interest is payable on such unpaid interest from 02.06.1997 to 02.07.2006 and, also further interest on the said amount, ti, realization. 13' In the facts of this case, while the customs Act , 1962, does not e4pressry pro'ide for payment of interest on the interest corlected wrongly, it is trite law that when an amount is wrongfuuy collected or withherd from an assessee without Iegal authority, the Revenue is bouncr to compensate the assessee. More so, section 11BB of the Act, rg44, rnandates payment of interest for aelayecr refunds from the expiry of three-months period from the date of receipt of the refund application until tJ:e actual refund is made.
The Honble Suprerne Courr (supra) has held as under: in Sanduik Asict Ltd,s case "28' In our view, there is no question of the delay being justiliable' as is argued ancr in any event if the revenue takes an erroneous view of the raw, that cannot mean that the withhotding of monies is justifiable' or ,not wrongfur,. There is no exception to the principre raicl down for an allegec,y i i i ! J , It I I it i
,/i 9 'justifiable' withholding, arid even if there was, 17 (or 12) years delay has not been and cannot in the circumstances be justificd. Does the Act provlde for oavnent of comDensatlon for delave d pavment ofrmoun due to an e ln a case where these atnounts include in t?
In our view, the Act recognizes the principle that a person should only be taxed in accordancb with law and hence rvhere excess arnounts of tax are collected from an assessee or any amounts are wrongfully withheld from an asscsscc without authority of law the revenue must compensate the assessee.
The facts and the law referred to in paragraph (supra) would clearly go to show that the appellant was undisputably entitled to interest under Sections 214 an<l 244 of thc Act as held by the various High Courts and also oi this Court. In the instant case, the appellant.s mont:.r' hacl been unjustifiably withheld by the Department for i 7 r'c:rrs without any rh5rme or reason. The interest was paid onlr' zit the instance and the intervention of this Court irr Civil Appeal No. 1887 of 1992 dated gO.O4.lggT.lnterest r>n clclavcd p?lymcnt of refund was not paid to the appellant on 27.O3.1981 and 30.04.1986 due to the erroneous vieu, that hacl been raken by the oflicials of the respondents. Intcrcst on rcfund was granted to the appellant after a substantierl lapse of time and hence it should be entitled to compens;rlion for this period of delay. The High Court has 10 failed to appreciate that while charging interest from the assesses, the Department first adjusts the amdunt paid towards interest so that the principle amount of tax payable remain outstanding and they are entitled to charge interest till the entire outstanding is paid. But when it comes to granting of interest on refund of taxes, the refunds are first adjusted towards the ta:res and then the balance towards interest. Hence as per the stand that the Department takes they are liable to pay interest only upto the date of refund of tax while the5r take the benefit of assesses funds by delaying the payment of intereSt on refunds without incurring any further liability to pay interest. This stand taken by the respondents is discriminatory in nature and thereby causing great prejudice to the lakhs and lakhs of assesses. Very large number of assesses are adversely affected inasmuch as the Income Tar Department can now simply refuse to pay to the assesses amounts of interest lawfully and admittedly due to that as has happened in the instant case. It is a case of the appellant as set out above in the instant case for the assessment year L978-79, it has been deprived rsf an amount of Rs.4O lakhs for no fault of its own and exclusively because of the admittedly unlaurfirl actions of the Income Tax Department for periods ranging up to 17 years u,ithout any compensation whatsoever from the Department. Such actions and consequences, in our opinion, seriously affected the administration ofjustice and the rule of larv." 15. [n Sqnduik Asia Ltds case (supra), the Honble Supreme Court further held that forceful collection of interest
- l1 from the assessee cannot deprive the assessee from entitlement of interest on the said portion and even in the absence of any provision, compensation for delay is required to be paid.
In the instant case, the interest of Rs.31,52,256/_ on the duty paid was forcefully collected from the assessee, even though the Revenue was not entitled to collect the same and for a considerabte period from L997 to 2O06, the said amount was kept with the revenue and only in the year 2006, the said amount was refunded to the assessee.
In So,nduik Asia Ltd,s case (supra), it was categorically held by the Honble Supreme Court that even in the absence of specilic pro'ision, the amounts collected forcefirlly from the assessee should not be kept with the revenue for a longer period and thar thc court further held that the assessee is also entitled for intcrcst on the said amount.
Thus, in the light of the above judicial precedents, in our considered vicu', the Revenue cannot act in contradicting ways, i.e., on one hand demanding interest from the assessee
: 72 for the deray in payment of duties, and on other hand refusing to pay interest on the amount thaf r,oo that was wrongly collected. This would be unfair and unjust, on the part of the Department, since the delay was caused entirely by the Rt)venue retaining the funds and they are bound to compensate the assessee. 19' tn that view of the matter, the respondent is directed b pa-rz interest @ 7 '5% from the date of claim for refund to the date of actual payment of refund claim i.e., from 02.06.1992 to 09'03'2006' and thereafter pay further interest @ 6%p.&., on the unpaid interest amount for the period from 09.03.2006 to 29'11'20t1(t,l the f,ing of appear before this court) u,ithin a period of (06) weeks from the date of receipt of a copy of this order 20' Insofar as payment of further interest on such unpaid interesr from 2g.ll.2oll onwards, it is clarified that the appelra.t/assessee is not entitled to the same, os the nratter has remainecl pending adjudication before this Court, and the respondent-Revenue cannot be penalized for no faurt of it. i
I 13
Accordingly, the instant appeal is ALLOWED. No order as to costs. As a sequel, miscellaneous applications pending if any, shall stand closed. JOINT REGISTRAR ,/// To, l.Thecustoms.ExctseandServiceTaxAppellateTribunal,SouthZoneBench at Bangalore
The Commissioner Central Excise and Customs (Appeals)' Hyderabad
The Assistant Commissroner of Central Excise Hyderabad, 'N' Divibion'
One CC to Sri Karthik Ramana Puttamreddy Advocate [OPUC]
One CC to Sri A. Rama Krishna Reddy (Standing Counsel for CBEC)[OPUC]
Two CD CoPies VIVBA 8x{) {
t HIGH COURT DATED: 26tOSt2O26 JUDGMENT CEA.No.195 of ZO11 ALLOWING THE CEA -. ., ,...+-...-.:.:- tt!t : :i.t.'t- '' ' '. < . o .-l 2 o f,Pfl it2.6 o .;. rj I * fsPAr W" .;
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