Commissioner of Central Excise & Service Tax v. GAIL (India) Ltd.

Coram: Hon'ble P.K. Choudhary, Member (Judicial) and Hon'ble V. Padmanabhan, Member (Technical)

Background and Factual Matrix:

The respondent, GAIL (India) Ltd., operates an LPG Recovery Plant at Lakwa, situated in the Sivasagar District of Assam. The respondent had been availing the benefits under Notification No. 33/99-CE dated 8 July 1999, which provides area-based exemptions for excise duties for units situated in certain notified areas. As per the provisions of this notification, the respondent was entitled to claim periodic refunds for excise duties paid on the LPG manufactured in their unit.

The dispute arose concerning refund claims for the period March 2000 to April 2001, where the respondent filed a refund claim amounting to Rs. 3,53,67,180. While the claim was initially rejected by the Assistant Commissioner, it was later allowed by the Commissioner (Appeals), and the refund was sanctioned to the respondent on 15 July 2007. However, the respondent sought interest on the delayed refund under Section 11BB of the Central Excise Act, 1944, for the period beyond three months from the date of filing the refund claim. The Assistant Commissioner rejected the claim for interest, but the Commissioner (Appeals) allowed the same.

The present appeal is filed by the Commissioner of Central Excise challenging the decision of the Commissioner (Appeals) which allowed interest on the delayed refund.

Arguments:

Appellant's Submissions:

The Department contended that interest should not be payable on the delayed refund under Notification No. 33/99-CE. The department relied on the argument that the area-based exemptions under the notification did not warrant the application of Section 11BB for the payment of interest, especially in the context of the specific refund mechanism set under the notification.

Respondent's Submissions:

The respondent, represented by Shri M.P. Bagaria, Ld. CA, countered the department's arguments, asserting that refunds under Notification No. 33/99-CE are entitled to the same treatment as other excise duty refunds under the Central Excise Act, 1944. He relied on the judgment in Amalgamated Plantations (P) Ltd. v. Union of India (2013 (296) ELT 13 (Gau.)), where the Gauhati High Court had ruled that interest is payable under Section 11BB for delayed refund payments. The respondent further cited that the Review Petition filed by the Union of India in the Amalgamated Plantations case was dismissed by the Hon'ble Gauhati High Court in 2016 (340 E.L.T. 310 (Gau.)).

Court's Analysis and Decision:

The court began by examining the provisions of Notification No. 33/99-CE and the applicability of Section 11BB of the Central Excise Act. The primary issue at hand was whether the respondent was entitled to claim interest for the delayed refund after the statutory three-month period, as provided under Section 11BB.

The court observed that under Section 11B(2) of the Central Excise Act, once the refund application is processed and found to be due, the excise duty must be refunded within three months. If the refund is not processed within this period, interest at a rate prescribed by the Central Board of Excise and Customs is payable from the expiry of the three-month period until the date of refund.

The court highlighted the Amalgamated Plantations (P) Ltd. case, where the Gauhati High Court had ruled that interest under Section 11BB is applicable to refunds due under Notification No. 33/99-CE, as there was no exemption provided from the application of Section 11BB in the notification.

The court referred to the Supreme Court decision in Ranbaxy Laboratories Ltd. v. Union of India (2011 (273) E.L.T. 3 (S.C.)), which reiterated that the provisions of Section 11BB automatically apply to all refunds, and any delayed payment attracts interest. The Revenue’s argument that the notification provided for specific timelines for refund did not exclude the application of interest for delayed payment under Section 11BB.

The court also noted that the Central Board of Excise and Customs had issued a circular on 1 October 2002, stressing that the provisions of Section 11BB apply automatically for any refund sanctioned beyond the prescribed period of three months.

Key Takeaways:

Section 11BB of the Central Excise Act: This section mandates that interest must be paid on refunds not processed within three months of filing the refund application.

Refunds under Notification No. 33/99-CE: The court held that even though the refund was claimed under an area-based exemption notification, the provisions of Section 11BB still applied to the delayed refund, as the notification did not provide any exemption from interest payment.

Precedent: The Gauhati High Court's decision in Amalgamated Plantations (P) Ltd. was cited to uphold the principle that interest is payable on refunds delayed beyond three months, irrespective of the type of refund.

Conclusion:

The appeal filed by the Commissioner of Central Excise was rejected. The decision of the Commissioner (Appeals), which allowed the payment of interest on the delayed refund, was upheld. The court followed the principles established in Amalgamated Plantations (P) Ltd. and Ranbaxy Laboratories Ltd., affirming that interest under Section 11BB applies to all excise duty refunds, including those claimed under area-based exemption schemes, if not refunded within the statutory time frame.