Interest of refund on penalty is not admissible under Section 11BB

Bundy India Limited Vs C.C.E. & S.T. (CESTAT Ahmedabad)

Hon’ble Apex Court in the case of CORONATION SPINNING INDIA (Supra) has held that interest of refund on penalty is not admissible under Section 11BB.   As a result I do not find the appellants are entitled to any refund of interest on penalty amount under Section 11BB. As regard, the appellant’s contention that the revenue cannot recover the same, as no demand show cause notice has been issued. I find that the said issue cannot be decided in the present proceedings.

FULL TEXT OF THE CESTAT JUDGEMENT

This appeal has been filed by the M/s. Bundy India Limited against denial of interest on the penalty refunded to the appellant.

2. Learned Counsel Mr. Vivek Bapat, appeared for the appellant. He argued that the appellant were entitled to refund of penalty but the claim of refund was rejected by the original adjudicating authority. They challenged the order of the original adjudicating authority before Commissioner (Appeals), who set aside the said order rejecting the refund claim and remanded the He argued that while remanding the matter, in para 5.4 of the order, Commissioner (Appeals) had directed refund of penalty along with interest. He argued that in the remand proceedings the adjudicating authority sanctioned the refund and interest to the appellant. The Revenue challenged the sanctioned order before Commissioner (Appeals) in respect of the interest sanctioned. The Commissioner (appeals) set aside the order of the original Adjudicating Authority again. Aggrieved by the said order the appellant before the Tribunal. Learned Counsel argued that in para 5.4 of the remand order of the Commissioner (Appeal) dated 03.07.2017, the Commissioner (Appeals) had directed refund of penalty along with interest. The said order of the Commissioner (Appeals) was accepted by the revenue and therefore his observation become final and therefore refund has to be granted along with interest. He further argued that the revenue has not raised any demand show cause notice consequent to the sanctioned of refund. As a result the amount sought to be recovered cannot be recovered by the revenue.

3. Learned Authorized Representative argued that section 11BB pertains only to refund of interest on duty and not refund of interest on penalty. He relied on the decision of Hon’ble Apex Court in the case of CORONATION SPINNING INDIA-2017 (50) S.T.R. 119 (S.C). He further argued that the remand order of the Commissioner (Appeals) dated 07.2017 did not direct refund of interest along with penalty. He argued that the said observation was merely open remand. He relied on para 5.6 since of the said order. He further argued that the matter regarding issue of protective show cause notice is not relevant in the present proceedings as whether revenue is able to recover or not independent issue.

4. I have considered the rival submissions. I find that Hon’ble Apex Court in the case of CORONATION SPINNING INDIA (Supra) has clearly held that interest of only refundable duty is admissible under Section 11BB had not that of penalty and fine. It is notice that Commissioner (Appeals) its original remand order dated 07.2017 has observed as follows:-

“5.4. I further find that the adjudicating authority has merely mentioned the legal position of Section 35FF without discussion how it makes its impact upon the instant case. As contested by the appellant, the consequential refund claim in respect of said CESTAT Order dated 26.03.2008 for setting aside the penalty was filed on 24.4.2008. Therefore, I find that the effectual date from which interest is due to the appellant under these circumstances shall be on expiry of a period of three months from the date of receipt of original refund application. In this context, it is significant to refer to Board’s Circular No. 670/61/2002-CX, dated 1-10-2002.

5.5………………

5.6. I am of the view that it would serve the ends of justice, if the original authority is directed to have a fresh look into the issues raised by the appellant in the present appeal. Original authority shall decide the matter after duly examining all the factual and legal issues raised by the appellant and decide the same in accordance with law after following principles of natural justice.”

5.7 Since , the matter is being remanded; no opinion is expressed on the legal and factual maintainability of the appellant’s case. For remanding the matter, I rely on Hon’ble Gujarat High Court’s judgment in the case of Medico Labs-2004 (273) ELT -0117 (Guj.) wherein it has been held that the Commissioner (Appeals) has power to remand the matter to the lower authority even after amendment of Section 35F of the Central Excise Act, 1944. The same view has also been considered by the Hon’ble CESTAT, Ahmedabd in case of Bacha Motors (P) Ltd Vs. CST, Ahmedabad-2010 (20) STR 0575. The relevant para of the said law is reproduced below:-

“4. It was also submitted that in several decisions of the Tribunal, reliance was placed on the decision of Hon’ble Supreme Court in the case of M/s. Mill India Ltd. – 2007 (210) ELT 188 (S.C.) to support the view that the Commissioner has no power to remand. After considering all these decisions, I find that in the case of M/s Mill India, the main issue before Hon’ble Supreme Court was entirely different and hence it was only observation during the course of discussion of the issue wherein Hon’ble Supreme Court mentioned about the amendment of the Section. It cannot be said that Hon’ble Supreme Court laid down the law in that case. Whereas in the case of M/s. Medico Lab Hon’ble Gujarat High Court was dealing with the issue of remand only and after considering the issue in detail, Hon’ble High Court had come to the conclusion that the Commissioner has powers to remand. In view o the fact there are contradictory decisions of the Tribunal other than the decision of Hon’ble High Court of Punjab & Haryana there is no other decision holding a contrary view to that of Hon’ble Gujarat High Court in Medico Lab, I conclude that as far as Gujarat State is concerned, the decision of Hon’ble Gujarat High Court is binding and accordingly Commissioner has power to remand the matter and therefore no interference is called for.”

5. It is noticed that the observations in para 5.4 are not directory in nature whereas the findings in para 6 are specific and directory in nature. It is also in notice that para 5.7 clearly mentions that “since the matter is being remanded; no opinion is expressed on the legal and factual maintainability of appellant’s case”. Thus, all issues remain open. Hon’ble Apex Court in the case of CORONATION SPINNING INDIA (Supra) has held that interest of refund on penalty is not admissible under Section 11BB.   As a result I do not find the appellants are entitled to any refund of interest on penalty amount under Section 11BB. As regard, the appellant’s contention that the revenue cannot recover the same, as no demand show cause notice has been issued. I find that the said issue cannot be decided in the present proceedings.

6. Consequently, the appeal is dismissed.