Jindal Drugs Limited Vs Commissioner of Central Excise (CESTAT Mumbai)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, dismissed the appeal challenging the Commissioner (Appeals)’ order denying interest on the refund of a pre-deposit made under the Central Excise Act, 1944.
The appellant, engaged in the manufacture of cocoa powder and cocoa butter, had deposited ₹4 crore on 21.04.2014 pursuant to an order of the Bombay High Court directing it to deposit the amount in cash and furnish a bank guarantee of ₹9.40 crore while granting stay and remanding the matter to the Tribunal. Subsequently, by Final Order dated 16.04.2015, the Tribunal decided the substantive dispute in favour of the appellant, holding that the process undertaken in respect of cocoa butter received from its Jammu factory amounted to manufacture under the Central Excise law. The Tribunal also held that the appellant was entitled to CENVAT credit of central excise duty paid on inputs received from its Jammu factory and eligible for rebate of central excise duty, where applicable, on export of final products.
Following the Tribunal’s decision, the Deputy Commissioner sanctioned a refund of ₹4,27,74,795 through Order-in-Original dated 18.06.2015. The refund comprised the ₹4 crore pre-deposit and interest of ₹27,74,795 calculated at 6%.
The Principal Commissioner reviewed the Order-in-Original on the ground that the amended provisions of Section 35FF of the Central Excise Act, effective from 06.08.2014, were not applicable to pre-deposits made before that date because of the proviso to the amended provision. An appeal was accordingly filed before the Commissioner (Appeals), who allowed the Department’s appeal, denied the interest component, and directed the appellant to repay ₹27,74,795 along with applicable interest. The appellant challenged that order before the Tribunal.
The appellant contended that the original authority had correctly sanctioned interest under the amended Section 35FF. It submitted that although the pre-deposit had been made on 21.04.2014, the Tribunal’s order entitling it to refund was passed on 16.04.2015 and the refund application was filed on 03.06.2015. On this basis, it argued that the amended Section 35FF, effective from 06.08.2014, governed the refund.
The Revenue supported the findings of the Commissioner (Appeals).
The Tribunal identified two issues for determination: whether the ₹4 crore deposited pursuant to the Bombay High Court’s order was refundable with interest, and whether the denial of interest under Section 35FF was legally sustainable.
The Tribunal observed that the refund of the ₹4 crore pre-deposit was undisputed and that the only issue concerned entitlement to interest. It examined both the unamended and amended versions of Section 35FF of the Central Excise Act.
The Tribunal noted that, prior to 06.08.2014, Section 35FF provided for payment of interest only where the refunded amount was not returned within three months from the date of communication of the appellate authority’s order to the adjudicating authority. The amended provision, effective from 06.08.2014, introduced payment of interest from the date of deposit until the date of refund. The Tribunal observed that this amendment accompanied the introduction of mandatory pre-deposit requirements under the Central Excise law. It further noted that the amended provision contained a proviso preserving the applicability of the earlier Section 35FF for pre-deposits made before 06.08.2014.
Applying the statutory provisions to the facts, the Tribunal held that the appellant had made the pre-deposit on 21.04.2014, prior to 06.08.2014. Consequently, the unamended Section 35FF governed the case. The Tribunal further observed that the refund had been sanctioned on 18.06.2015, within three months from the Tribunal’s final order dated 16.04.2015. Therefore, the conditions for payment of interest under the unamended Section 35FF were not satisfied.
Holding that the Commissioner (Appeals) had correctly upheld the refund while denying interest and directing repayment of the interest already sanctioned, the Tribunal found no reason to interfere with the impugned order.
Accordingly, the appeal was dismissed and the impugned order was sustained.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal has been filed by M/s Jindal Drugs Limited (herein after, referred to as “the appellants”, for short) assailing Order-in-Appeal No. CD/389/Bel/2016 dated 02.03.2016 (herein after, referred to as “impugned order” for short) passed by the Commissioner (Appeals), Central Excise, Mumbai-II.
2. Brief facts of the case are that appellants are engaged inter a/ia, in the manufacture of Cocoa Powder/Cocoa Butter falling under Chapter subheading No. 1804 0000 and 1805 0000 of the Central Excise Tariff Act, 1985. The appellants had deposited an amount of Rs.4,00,00,000/- (Rupees Four crores) vide challan dated 21.04.2014 in pursuant to the order dated 13.03.2014 passed by the Hon’ble High Court directing them to deposit the said amount in cash with the Department/competent authority and to furnish a Bank Guarantee for an amount of Rs.9.40 crores while granting stay and remanding the matter back to the Tribunal for deciding the appeal on the disputed issue. Subsequently, vide the Final Order dated 16.04.2015, Coordinate Bench of the Tribunal had decided the case in favour of the appellants, by holding that the process undertaken by the appellants in respect of Cocoa butter received from their Jammu factory to their factory situated in MIDC-Taloja, Panvel amounts to manufacture in terms of the Central Excise statute and they are rightly eligible to take CENVAT credit of central excise duty paid on inputs received from their Jammu factory for manufacture of final products and are also eligible for rebate of central excise duty paid, if any, on export of final products. Pursuant to this order of the Tribunal, the Dy. Commissioner of Central Excise, Kalamboli Division, Raigad Commissionerate sanctioned refund of Rs.4,27,74,795/-, which included interest @ 6% amounting to Rs.27,74,795/-, besides the cash deposit of Rs.4 crores made at behest of the order of the Hon’ble Bombay High Court, vide Order-in-Original dated 18.06.2015. The said order of the original authority dated 18.06.2015 was reviewed by the Principal Commissioner on the ground that the provisions of Section 35FF of the Central Excise Act, 1944 as amended w.e.f. 06.08.2014, for grant of interest is not applicable in respect of pre-deposit made prior to 06.08.2014 in view of the proviso clause specified therein and accordingly, directed the Dy. Commissioner to file an appeal before the Commissioner (Appeals). On an appeal filed by the Department, the learned Commissioner of Central Excise (Appeals) vide order dated 02.03.2016 had allowed the appeal filed by the Department and denied payment of interest and ordered the appellants to pay interest amount of Rs.27,74,795/- which was sanctioned earlier incorrectly along with interest to the Department. Accordingly, in the impugned order dated 02.03.2016, the learned Commissioner (Appeals) modified the order of the original authority to the above extent. Against the said impugned order passed by the Commissioner of Central Excise (Appeals), the appellants have filed this appeal before the Tribunal.
3. Learned Counsel appearing for the appellants had submitted that the original authority had sanctioned pre-deposit made by them along with interest in terms of Section 35FF of the Central Excise Act, 1944. In this regard, he claimed that the amended provisions Section 35FF effective from 06.08.2014 is applicable to their case in view of the fact that the refund had arisen from the order of the Tribunal dated 16.04.2015 and pre-deposit was made on 21.04.2014. Further, since they filed refund claim dated 03.06.2015, they claimed that the amended provisions of Section 35FF is applicable to them.
4. Learned Authorized Representative appearing for the Revenue reiterates the findings recorded by the learned Commissioner (Appeals) in the impugned order.
5. The learned Commissioner (Appeals) has recorded the findings while allowing the appeal filed by Revenue, which are reproduced herein below:
“7. In this case, the Respondents made the payment of pre-deposit on 21.4.2014. The Hon’ble CESTAT decided the matter in their favour vide its Order dt. 16.4.2015. Under the erstwhile Section 35FF, the interest needs to be paid only after the lapse of 3 months from the date of receipt of Hon’ble CESTAT’s Order. The amended Section 35FF is effective only from 6.8.2014 (the date on which the Finance Act, 2014 commenced). The said Section was not given a retrospective effect by the Legislature. Giving effect to this Section 35FF which is effective from 6.8.14 by the Adjudicating Authority is a clear case of misunderstanding the legal provisions. In this case, the Adjudicating Authority sanctioned the refund on 18.6.15, i.e. well within the period of 3 months as stipulated in the erstwhile Section 35FF which is applicable in this case. The Adjudicating Authority is not legally required to sanction any interest in this matter. Sanctioning the interest in this case is not legal and correct. Sanctioning the interest by the Adjudicating Authority is without any authority of law. Accordingly, the Order passed by the Adjudicating Authority sanctioning the interest is liable to be set aside.
8. In view of above, the Order-in-Original sanctioning interest portion alone is set aside. The Respondent is ordered to repay the interest amount of Rs. 27,74,795/-taken along with interest to the department without delay. Order-in-Original is modified to that extent.”
6. The issue for consideration before the Tribunal are,–
i. whether the deposit of Rs.4 crores paid by the appellants on 21.04.2014, as pre-deposit made with the Department on the basis of the direction given by the Hon’ble Bombay High Court, is refundable along with interest or not?;
ii. whether the impugned order modifying the order of the original authority for denial of interest and seeking its repayment, is proper and justified in terms of Section 35FF of the Central Excise Act, 1944 and is legally sustainable?
7. It is an undisputed fact on record that amount of Rs.4 crores was paid by the appellants with the Department in pursuance of the order of the Hon’ble Bombay High Court (supra). The said amount of pre-deposit was refunded vide the order dated 18.06.2015 passed by the original authority and the same is also not under dispute. As regards the issue of payment of interest, relevant legal provision concerning this issue is provided under Section 35FF of the Act of 1944, which is extracted and given below: –
Section 35FF of the Central Excise Act, 1944
(upto 05.08.2014)
-“Section 35FF. Interest on delayed refund of amount deposited under the proviso to section 35F.—Where an amount deposited by the appellant in pursuance of an order passed by the Commissioner (Appeals) or the Appellate Tribunal (hereinafter referred to as the appellate authority), under the first proviso to section 35F, is required to be refunded consequent upon the order of the appellate authority and such amount is not refunded within three months from the date of communication of such order to the adjudicating authority, unless the operation of the order of the appellate authority is stayed by a superior court or tribunal, there shall be paid to the appellant interest at the rate specified in section 11BB after the expiry of three months from the date of communication of the order of the appellate authority, till the date of refund of such amount.”
Section 35FF of the Central Excise Act, 1944
(With effect from 06.08.2014, as amended by Finance (No.2) Act, 2014
Amendments to the Central Excise Act, 1944 in Finance Bill (No.2)
(as proposed, as amended by Finance (No.2) Act, 2014
8.1 On perusal of the aforesaid legal provision, as introduced in the Finance Bill, 2014 and as per the Finance (No.2) Act, 2014, it transpires that Section 35FF could have been introduced through official amendment of Finance (No. 2) Bill, 2014 introduced as a part of Union Budget, 2014. It is also noticed that the original amendments to the Central Excise Act, 1944 through the Finance Bill, 2014 vide various clauses 89 to 104 had not contained any proposal for amendment of Section 35FF ibid. However, amendment to Section 35FF was introduced as Section 106 of the Finance (No. 2) Act, 2014 by way of substitution of a new section instead of the earlier legal provision that existed in the Central Excise statute. This provision relates to payment of interest on delayed refund of amount deposited under Section 35F ibid. The amended legal provision under Section 35FF ibid effective from 06.08.2014 provided for payment of interest at prescribed rate fixed by the Government consequent to any order passed by the appellate authority making a person eligible for refund of deposit made under Section 35F for a period commencing from the date of payment of amount till the date of refund of such amount. The provision that existed prior to 06.08.2014 provided for similar provision involving payment of interest consequent upon the order of the appellate authority, whereby a person is eligible for refund of deposit made under Section 35F ibid, only if the said amount is not refunded after expiry of three months from the date of communication of the order of the appellate authority, till the date of refund of such amount. However, the substituted provision with effect from 06.08.2014 provided for payment of interest on refund of pre-deposit made in the appellate forum, from the date of such payment till the date of actual refund of such amount. This distinction, in my considered opinion, is for the reason that the Government for the first time in the Central Excise statute had prescribed mandatory pre-deposit of certain percentage of duty demanded or penalty, if only penalty is in dispute, for entertaining the appeal before the appellate forum. In other words, w.e.f. 06.08.2014, any person aggrieved for filing an appeal was by law required to make pre-deposit before filing an appeal. Whereas, prior to this date, there was discretion with the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, for dispensing with pre-deposit, if they are of the opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, subject to such conditions as they may deem fit to impose so as to safeguard the interest of revenue. Therefore, I am of the considered view that there was a requirement to pay interest in respect of pre-deposit refundable after introduction of mandatory pre-deposit, from the date of such payment. Accordingly, such change was brought forth in the Finance (No. 2) Act, 2014 by introducing amendment to the Finance (No.2) Bill, 2014 already introduced. Further, a proviso clause was also introduced in the said Section 35FF ibid w.e.f. 06.08.2014 to the effect that the erstwhile provision of Section 35FF ibid, as it existed prior to 06.08.2024, to continue to apply in respect of pre-deposits made prior to that date i.e., 06.08.2024; and for applying the substituted provision only in respect of pre-deposits made on or after 06.08.2024.
8.2 On careful reading of the amendment made under Section 35FF ibid, I find that the proviso clause has been added to the said Section providing for application of Section 35FF ibid as it stood before the commencement of Finance (No. 2) Act, 2014 i.e. prior to 06.08.2014 in respect of deposit made prior to such date. It is a fact on record that the appellant has deposited the amount of Rs. 4 crores on 21.04.2014, i.e., prior to 06.08.2024. Therefore, the unamended provision of Section 35FF ibid alone will be applicable to the present case. Further, the facts are not under dispute that the case was decided in the appellants’ favour in the Final Order dated 16.04.2014 passed by the Tribunal and the refund of pre-deposit was sanctioned by the concerned authority on 18.06.2015 i.e., within a period of three months stipulated in erstwhile Section 35FF ibid and in terms of proviso clause of the amended Section 35FF ibid. Therefore, I am of the view that payment of interest does not arise in the present case, in terms of the applicable legal provisions of Section 35FF ibid.
9. In view of the aforesaid discussions, I am of the view that the impugned order dated 02.03.2016 upholding the sanction of refund, but denying the payment of interest and ordering its repayment does not require any interference. Accordingly, the impugned order is sustained and appeal filed by the appellants is dismissed.
(Order pronounced in open court on 16.07.2026)
