IMPORTANT POINT
If the claim of interest is on equitable ground, a written demand therefore is imperative.

Judgment

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.,1 [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).