ORDER
M. Veeraiyan, Member (T)
1. This is an appeal against the order of the Commissioner (Appeals) No. 411/2005(411-KDL)Cus/Commr(A)/ AHD, dt.30.12.2005.
Heard both sides.
2. The relevant facts, in brief, are as follows:
a) In the course of hearing of an appeal, the Tribunal vide its order dt. 19.2.92 on the stay petition, directed pre-deposit of Rs. 10 lakhs towards penalty against a penalty of Rs 50 lakhs imposed by the Commissioner of Customs. The entire penalty was set aside by the Tribunal by its final order dt. 13.5.94.
b) The appellant filed a claim for return of the pre-deposit in Jan.’97; after a lot of litigation, it was refunded by a cheque dt.9.7.02; the appellant claimed interest on the pre-deposit of penalty was which belatedly returned for period after 3 months from the date of filing the claim in Jan.’97 till the date of payment.
c) The original authority rejected the claim for interest. The Commissioner (Appeals) by his impugned order held that the Customs Act did not empower the Departmental officers including Commissioner (Appeals) to grant interest on delayed payment of refund of pre-deposit of penalty.
d) Hence, the present appeal.
3. The learned advocate submits that the interest is compensatory in nature whereas the penalty is aimed to be a deterrent. When the penalty imposed gets set aside and when it is refunded the interest should be paid applying the concept of compensatory principle taking into account that the amount was in the hands of the Department and was not available with the assessee for their use.
He relies on the following decisions and circular by the Board in support of his submissions.
a) The Larger Bench of the Tribunal in the case of Mulji Narshi Shah 2003 (155) ELT 191 (Tri-LB) has held that interest is payable on the delayed refund of pre-deposit of penalty; the Tribunal also adopted the rates as prescribed under Section 27A of Customs Act, 1962 for the period from the date of expiry of 3 months after the date of application for refund till the date of payment. This order for interest has been made in relation to the claim made after disposal of the appeal.
b) He also submits that the appellate commissioner has wrongly applied the decision of the Larger Bench in case of Advance Mechanical Works v. CCE Rajkot , to his case. The said case was dealing with interest payable on the deposit of redemption fine, when in the appellate proceedings, the confiscation was set aside and redemption fine was to be refunded. In that case, the claim for interest was for the period when the order of confiscation subsisted against the assessee.
c) He also relied on the judgment of the Hon’ble Supreme Court in case of ITC Ltd. 2005 (179) ELT 15 (SC), wherein payment of interest on delayed refund @ 12% p.a. commencing from 3 months after final disposal of the dispute was ordered after taking note of the draft circular of the Board No. 802/35/2004-CX, dt.8.12.04. He submits that the Board’s circular dt.8.12.04 clearly envisages the liability of interest on pre-deposit which are not returned within the period of 3 months after the disposal of appeal in the assessee’s favour.
d) He also submits that the Supreme Court judgment in case of ITC Ltd. and Board’s circular dt.8.12.04 only a clarification of law as it existed and therefore his case where the application for refund was made in Jan.’97 and the refund having been paid only in July’02 also be covered.
4. The learned SDR made the following submissions.
a) In the case of Mulji Narshi Shah cited supra, the issue considered by Larger Bench was interest payable on the delayed refund of pre-deposit. The Department has taken a stand that no interest is payable on refund of pre-deposit and no distinction was sought to be made whether the refund of pre deposit relates to duty, fine or penalty.
b) He submits that in case of Advance Mechanical works, Larger bench was concerned with the specific issues as to whether interest was payable on refund of pre-deposit of fine as well as penalty.
5. I have carefully considered the submissions from both sides. The duty requires being collected strictly as provided by law. In practice, there could be cases of excess collection or short collection due to various reasons. The provisions for demand of duty short levied or not levied or short paid etc. from the assessee by the department and the provisions for claim for refund by the assessee from the department when there are excess payment or payment made when not required are reciprocal provisions.
6. The interest, as rightly pointed out by the learned advocate, is somewhat compensatory in nature. However, the interest becomes demandable by the department and payable by the department in terms of specific provisions of statute.
7. The provisions relating to confiscation and penalty are penal in nature. If a person, on whom a penalty is imposed, does not pay immediately and pays, say after a few years, as of now, the department has no powers to collect of interest on such delayed payment of penalty. Reciprocally, penalty imposed on a person was paid either fully or partly by that person and the same was set aside or reduced ultimately resulting in refund of amount of penalty he merely gets the amount of penalty without interest. As rightly held by the Commissioner (Appeals), there is no provision for grant of penalty under the Customs act. There is also no provision for recovery of interest on delayed payment of penalty.
8. Coming to the decision of Larger Bench, in case of Mulji Narshi Shah cited supra, the same has allowed the interest on the delayed payment deposit of penalty at the rate prescribed under Section 27A.
The subsequent Larger Bench Decision in the case of Advance Mechanical Works cited supra has taken a different view. The relevant portion of the decision of the Larger Bench is reproduced below:
4. The referral order is concerned with the same issue, i.e., whether interest is payable on the redemption fine while refunding it. The issue is fairly covered by the decision of the Apex Court in Orient Enterprises supra. The circumstances under which interest is payable on the delayed refunds are enumerated in the Central Excise Act as well as Customs Act presently. The decision in Sheela Foam Pvt. Ltd. pertains to deposit made towards duty during the course of investigation and is not in regard to fine paid in pursuance of an adjudication order. The Apex Court clearly held that even under Article 226 of the Constitution, a claim for interest on redemption charges paid in pursuance of an adjudication order which was set aside later, can’t be maintained. The present appellant’s claim for interest on the redemption fine therefore cannot be upheld.
5. We observe that there is no conflict between the decision in Sheela Foam and Orient Enterprises. The latter was dealing with the interest on redemption fine to be refunded while the former was concerned about interest on deposit of duty. We conclude that no interest is payable on redemption fine and penalty while refunding the same in pursuance of an order of a higher judicial forum as observed by the Supreme Court in Orient Enterprises’ case. The case of interest on consequential refund of duty is covered by the decision in Sheela Foam case. There is no conflict between these decisions. We hold accordingly.
9. The Section 27A specifically refers to “interest payable on duty”. There is no provision of law which provide for payment of interest either by the department in the event of refund or by the parties on whom penalty is imposed.
10. Another submission by the learned SDR is that the draft circular which forms part of the decision of the Hon’ble Supreme Court, in the case of ITC Ltd. does not anywhere say that interest is payable on return of all pre-deposits on the orders favorable to the parties are passed. It only envisages that such determination has to be done by the Tribunal or Court as the case may be. If interest is held payable, then it envisages that delay in payment beyond 3 months will attract interest liability. I find that this interpretation is reasonable and I agree with the same.
11. Therefore, I do not find any infirmity with the order of the Commissioner (Appeals) which has followed the decision of the Larger Bench of the Tribunal in the case of Advance Mechanical Works cited supra.
12. Appeal is rejected.
(Dictated & Pronounced in Court)