Whether interest available to assessee on delayed refund of Rule 5 ?

M/S COMMISSIONER OF CENTRAL TAX, BENGALURU VERSUS NETAPP INDIA PVT. LTD. 2020 (32) G.S.T.L. 176 (KAR.)
BRIEF FACTS:-The respondent offered Information Technology Software Services, as defined under the Finance Act, 1994, to its foreign clients under the Service Agreement concluded with them. The respondent furnished FIRCs, along with Export Invoices, to establish that it realized export proceeds in convertible foreign currency. The respondent filed its returns in Form ST-3. Thereafter, the respondent filed two claims with the Assistant Commissioner, Division C, Bengaluru for refund of Unutilized Cenvat credit for the period between October, 2012 to December, 2012 and October, 2013 to December, 2013 under Rule 5 of the Cenvat Credit Rules, 2004. The Assistant Commissioner, Division C, Bengaluru examined the respondent’s claim for refund, and vide its separate orders dated 21-6-2017 allowed such claims for refund as provided for under Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No. 27/2012-C.E. (N.T.), dated 18-6-2012 (for short, ‘Cenvat Credit Rules & Notification dated 18-6-2012). However, the Assistant Commissioner, Division C, Bangalore did not grant interest for the delay in refund.
The respondent, being aggrieved by these orders, insofar as refusal of interest for the delay in the refund, filed two appeals before the Commissioner of Central Taxes (Appeals-1), who dismissed these two appeals holding that the respondent would not be entitled for payment of interest because the provision for payment of interest on delayed refund under Section 11BB of the Central Excise Act, 1944 would apply only where there has been excess payment or collection of duty. The Commissioner of Central Taxes (Appeals-1) emphasized that the principle for payment of interest for the delay in refund contained in Section 11BB of the Central Excise Act, 1944 cannot be extrapolated into Schema for refund of Unutilized Cenvat credit, as such Schema is nothing more than a facilitative mechanism provided to the exporter to convert the unutilized credit lying in its account into cash. The fundamental difference between the Schema for the unutilized Cenvat credit and refund of the excess duty paid or collected, the Commissioner of Central Taxes emphasized, is that in the former the unutilized credit lies in the assessee’s account unlike in the case of excess payment of duty that would be with the State Exchequer; as the State Exchequer would have the benefit of excess payment of duty, the provision for payment of interest is provided under Section 11BB of the Customs Act.
The respondent being aggrieved by this order, preferred an appeal with the Appellate Tribunal, and the Appellate Tribunal, by its impugned final order dated 21-2-2018, set aside the common order in Appeals holding that the appellate order by the Commissioner of Central Taxes (Appeals-1) cannot be sustained. The Appellate Tribunal relied upon the decision of the High Court of Gujarat at Ahmedabad in Commissioner of Central Excise v. Reliance Industries Ltd., reported in 2010 (259) E.L.T. 356 (Gujarat). The Appellate Tribunal also observed that the decision of the High of Gujarat was challenged before the Hon’ble Supreme Court [2011 (274) E.L.T. A110 (S.C.)] but such challenge was unsuccessful.
Therefore, aggrieved by the order of Tribunal, the revenue authorities are before the High Court.
ISSUE:-Whether interest available to assessee on delayed refund of Rule 5 ?
APPELLANT’S CONTENTIONS:-The Learned Counsel for the appellant-Revenue argued that payment of interest on delayed refund is payable under Section 11BB of the Central Excise Act, 1944 (for short, the ‘Act’), if the claim for refund is under Section 11B of the Act. However, the present claim by the respondent is for the refund of the unutilized Cenvat credit under the Cenvat Credit Rules and Notification dated 18-6-2012. As such, the Department/Revenue cannot be called upon to pay interest for delay in refund of the unutilized Cenvat credit under Section 11BB of Act. The Learned Counsel elaborated that the claim for refund under Section 11B of the Act is in respect of excess duty paid or collected. If the excess duty is paid or collected, then upon receipt of an application as provided under Section 11B of the Act, the interest on delay in refund is payable under Section 11BB of the Act provided that excess amount is not refunded within three months from the date of receipt of such application under Section 11B(1) of the Act. Under Section 11BB of the Act, the interest on the excess duty paid or collected is payable from the date of receipt of application till the date of refund of such duty at such rate which is not below 5% and not exceeding 30% p.a. as is fixed by the Central Government by Notification in the Official Gazette. However, under Rule 5 of the Cenvat Credit Rules and Notification dated 18-6-2012, a manufacturer or a provider of output service is allowed refund of such unutilized Cenvat credit subject to such safeguards, conditions and limitations as may be specified. The unutilized Cenvat credit lies in the account of the assessee and it is therefore distinct and separate from the excess duty paid or collected which would stand to the credit of the exchequer. As such, no recourse should be had to the provisions of 11BB of the Act to award interest in the event there is any delay in refund of unutilized Cenvat credit.
The Learned Counsel for the appellant-Revenue argued that the Appellate Tribunal has not recorded any finding on the respondent’s eligibility to interest under Section 11BB of the Act, if interest is payable, the manner of computation of interest, the period of commencement for computing interest and the quantum of refund on which interest is to be quantified. As such, the impugned order is perfunctory and contrary to law.

RESPONDENT’S CONTENTIONS:-The Learned Counsel for the respondent, on the other hand, submitted that this question whether interest on delayed refund of unutilized Cenvat credit as contemplated under Rule 5 of the Cenvat Credit Rules and Notification dated 18-6-2012 would be permissible under Section 11BB of the Central Excise Act has been considered by the High Court of Madras [2008 (221) E.L.T. 38 (Mad.)] as well as the High Court of Gujarat. In fact, the appellant-Revenue impugned the decision of the High Court of Gujarat before the Hon’ble Supreme Court, but the appellant-Revenue did not succeed in the said appeal. Therefore, the appellant-Revenue cannot re-agitate the issue again.
The Learned Counsel further contended that the manner of computation of interest is also settled in view of the decision of the Hon’ble Supreme Court in Ranbaxy Laboratories v. Union of India reported in 2011 (273) E.L.T. 3 (S.C.) wherein, the Hon’ble Supreme Court has declared that the liability of the Revenue to pay interest under Section 11BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund under Section 11B(1) of the Act and not on the expiry of the three months period from the date on which the order of refund is made. There cannot be any quarrel over the quantum of refund in view of the orders of the Assistant Commissioner, Division C, Bengaluru. Therefore, the impugned order does not suffer from any irregularity or perversity.
REASONING OF JUDGMENT: -After considering the submissions of both sides, the decisions given by the High Court of Gujarat as well as High Court of Madras were examined. The High Court of Gujarat in the case of Commissioner, Central Excise v. Reliance Industries Limited supra, while considering a similar canvas against the payment of interest on delayed refunds under Section 11BB of the Central Excise Act, in terms of the obligation to refund under Rule 5 of the Cenvat Credit Rules and Notification dated 18-6-2012, did not accept the canvas on behalf of the Revenue that the scheme for refund of unutilized Cenvat credit is a special beneficial scheme with self contained procedure providing for the manner and method of its implementation, and hence any refund claimed under the Rules would be governed only by the provisions of the Scheme and the general provisions of Section 11BB of the Central Excise Act cannot be resorted to. The High Court of Gujarat concluded that the Cenvat credit is nothing but duty paid by the supplier of inputs which are dutiable goods manufactured by the supplier or dutiable services rendered by the service provider; when such goods/services are utilized for further manufacture or providing service, which are dutiable, the manufactured goods or service provided carry the duty paid by the supplier of inputs as a component of its price/value. Hence, the duty payable on the ultimately manufactured goods/ services rendered stands reduced to the extent of duty already paid on the inputs. Thus, the duty paid on inputs by the supplier has already been actually received by the exchequer. Therefore, there is a basic fallacy in the argument by the Revenue that refund of unutilized Cenvat credit is different from excess duty paid or collected as contemplated under Section 11B of the Act. As such, the High Court of Gujarat held that when there is delay in sanctioning the refund under Rule 5 of the Cenvat Credit Rules and Notification dated 18-6-2012, the provisions of Section 11BB of the Central Excise Act would be clearly attracted.
The High Court of Madras, which was considering allowing interest on the delayed refund of unutilized credit under the Modvat Credit Scheme, has also concluded that the Modvat credit taken was nothing but payment of duty which would be available to the assessee on the assessee paying duty on inputs at the time of clearance of final bills and therefore, there is statutory obligation on the part of the appellant-Revenue under Section 11BB of the Act to pay interest for the delayed refund of the duty.
The Learned Counsel for the appellant-Revenue is unable to persuade this Court to hold that the obligation to refund unutilized Cenvat credit under Rule 5 of the Cenvat Credit Rules and Notification dated 18-6-2012 is distinct and separate from the obligation under Section 11B of the Act in the light of the reasoning in the aforesaid decisions. This Court concurs with the reasons assigned in the aforesaid decisions to hold that the Revenue would be obliged to pay under interest for the delayed refund as contemplated under Section 11BB of the Act even for the delayed refund of the unutilized Cenvat credit under Rule 5 of the Cenvat Credit Rules and Notification dated 18-6-2012. There is also considerable force in the submissions on behalf of the respondent that in view of the decision of the Hon’ble Supreme Court Ranbaxy Laboratories v. Union of India reported in 2011 (273) E.L.T. 3 (S.C.) that there cannot be any dispute about the liability of the Revenue to pay interest under Section 11BB of the Act commencing from the date of expiry of three months from the date of receipt of application for refund under Section 11B(1) of the Act. The Appellate Tribunal has referred to this decision in its impugned order. Similarly, in view of the orders of the Assistant Commissioner, Division-C, Bangalore, which has remained unchallenged as regards the quantum of refund of unutilized Cenvat credit, there cannot be any lis even as regards the quantum.
In the light of the aforesaid discussion, this Court is of the considered opinion that no substantial questions arise for consideration, and the appeals are dismissed accordingly.
COMMENT:-The assessee has to put considerable efforts for claiming refund and tremendous efforts for claiming interest on delay in sanction of refund claim. The issue litigated was grant of interest in case of delay in sanctioning refund of accumulated credit under Rule 5 of the Cenvat Credit Rules, 2004. The main contention was that the government is bound to pay interest only in case of delay in refund of tax paid by the assessee and not of accumulated credit which is merely facility provided to exporters. However, the High Court concluded that accumulated input tax credit is also tax paid to the government and the contention that interest provisions do not apply for delay in sanctioning refund of accumulated credit is false. This decision reflects the biasedness on the part of revenue authorities when the question of granting interest on delayed sanction of refund arises. The differential rate of interest for payment by assessees and that by revenue authorities itself is clear indicator of the discrimination which is not warranted.
Prepared By- CA Neetu Sukhwani

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