REPORTABLE

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

J U D G M E N T

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 therefor,  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. (Dr. MUKUNDAKAM SHARMA)

New Delhi, September 15, 2008