Mahavir Metal Mart vs Union of India (UOI) and Others

Roshan Dalvi, J.—This Suit is filed for recovery of the interest payable on the amount of refund of excise duty applied for by the Plaintiff and granted by the Defendants to the Plaintiff u/s 11BB of the Central Excise Act, 1955 (the Act) with further interest at the rate of 19% per annum from the date of the Suit until payment.

The Plaintiff was held liable for payment of excise duty. The Plaintiff disputed the liability. The Plaintiff claimed exemption. The exemption was disallowed. The Plaintiff was directed to give a Bank Guarantee of Rs. 1 Lakh. The Bank Guarantee came to be enforced on 8.2.1985. The Plaintiff was directed to pay additional amount of Rs. 1292.12 as Excise duty not covered under the Bank Guarantee on 23.11.1985. The Plaintiff paid under protest. The Plaintiff challenged the order before the Appellate Tribunal. The order of the Commissioner was confirmed. The Plaintiff challenged that order also before the Supreme Court. The Supreme Court set aside the order of the Tribunal and directed the Central Excise Authority to assess the value of the goods cleared by the Plaintiff and refund the duty paid by the Plaintiff if the exemption notification was applicable to the Plaintiff.

The Defendants allowed the exemption and hence refunded the excise duty payable by the Plaintiff which was recovered by encashment of the Bank Guarantee and the further payment made by the Plaintiff upon the application made by the Plaintiff.

The application was made by the Plaintiff for refund after the order of the Supreme Court came to be passed for assessing the value of the goods and allowing the exemption, if required. The Plaintiff had however paid the Excise duty which was challenged by the Plaintiff since 1985 itself. That was paid under protest. The Plaintiff made an application in 1997 after the order of the Supreme Court came to be passed on 18.9.1996. The Plaintiff would have been entitled to the refund of the excise duty and interest upon the application for refund being made. u/s 11B of the Act, the application for refund of duty repayable with interest was to be made within one year of the duty being paid. However the limitation period of one year was not to apply if the duty and interest were paid under protest as per the proviso to Section 11B of the Act. The Plaintiff claimed interest on the refund of duty allowed from the date on which the Bank Guarantee was encashed and the further payments were collected. That was disallowed upon the premise that the Plaintiff could be granted refund of duty and interest only from the date of the application.

The Plaintiff claimed interest u/s 11BB of the Act. The interest on delayed refunds under that section came into force from 26.5.1995. The Plaintiff would be statutorily entitled to such interest from that date. The Plaintiff''s application was made in 1997 but the claim was made for refund of interest calculated from 1985. The Plaintiff had made payment under protest which is excepted under the proviso to that section. The interest claimed for the period prior to 26.5.1995, when the Act came into force, is payable under common law and u/s 3 of the Interest Act, 1978. However, the entire interest amount has been disallowed.

The refund was allowed; the interest was disallowed. The Plaintiff has essentially sought to challenge the order disallowing interest dated 23.5.1997 passed by the Assistant Collector, Central Excise, Mumbai. The Plaintiff claims interest from the date when its monies have been wrongfully blocked which is held by the Supreme Court to have been incorrect. The Defendants have denied payment of any interest for any period prior to the application made by the Plaintiff in 1997. The Defendants claim that the refund was not delayed beyond the period allowed by the Statute after the Plaintiff''s application was made and hence no interest is payable. The Defendants also claim that the Suit is not maintainable u/s 40 of the Act. Based upon the respective pleadings of the parties the following issues were framed and are answered as follows:

ISSUES

(1) Whether the Suit is maintainable after Writ Petition No. 1584 of 1997 is dismissed.

(2) Whether the Suit is barred u/s 40 of the Central Excise Act.

(3) Whether the Plaintiff is entitled to interest as claimed by him from 1985 upon his application made in 1997 for refund of excise duty, if excise duty is found to be refundable and refunded by the Defendant.

(4) What rate of interest, if any, is the Plaintiff entitled to and for which period?

(5) What reliefs ?

Both parties agreed that the issues are in respect of only questions of law and no evidence is required to be led.

Issue No. (1) : Maintainability of the Suit : The order dated 23.5.1997 is otherwise appealable before the Appellate Tribunal. The Appeal is not preferred. That is the statutory alternate remedy which the Plaintiff had not exhausted.

The Plaintiff instead filed a Writ Petition. The Writ Petition is not maintainable in view of the alternate remedy. That has been held in the case of Union of India and Others Vs. M/s. Orient Enterprises and Another, . Besides, a Writ Petition is not maintainable also for payment of amounts be it by way of interest on delayed payments. The Plaintiff suing for such interest is required to maintain its action in a Civil Court only upon payment of ad valorem Court fee. Hence the Writ Petition has been rightly dismissed. Though the Defendants have relied upon that order, the Defendants have not produced the entire order. The dismissal of the Writ Petition on either of these grounds cannot bar a civil action if otherwise maintainable. Hence Issue No. (1) is answered in the affirmative.

However the interest claimed by the Plaintiff in this Suit is only partly recoverable u/s 11BB of the Act. It is the amount not granted under the order of the Assistant Commissioner who is an Authority to compute and refund the excise duty and interest. The statutory right of claiming interest has been made available only from 25.6.1995. Hence prior to that period interest under the common law and/or under the Interest Act alone could be payable. That interest can be recoverable in an action filed in a Civil Court.

Issue No. (2) - Bar u/s 40 of the Central Excise Act:

Under Section 40(1) of the Act, no Suit, prosecution or other legal proceedings can lie against the Defendants for any acts done or intended to be done in good faith and in pursuance of the aforesaid Act or the Rules. The Plaintiff''s Suit challenges the act of the Assistant Commissioner in refunding the Excise duty but not interest. The Plaintiff claims to have given notice to the Defendants u/s 41(2) of the Act. That section relates to the notice to be given for a proceeding other than a Suit. Hence that is not mandatorily required in this case. The Plaintiff has not only claimed statutory interest u/s 11BB of the Act. The Plaintiff''s claim for interest is from 1985 when its amount was blocked by the Excise Authorities by way of Bank Guarantee, which came to be enforced resulting in payment made to and recovered by the Excise Authority on and from 8.2.1985 and for the actual payment made by the Plaintiff to the Excise Authority for the balance amount on and from 23.11.1985. Such interest is not claimed under the Central Excise Act. It is claimed under the common law and Interest Act, 1978. The claim for such recovery can, therefore, be made only in a Civil Court. Only such of the claim, as could have been made u/s 11BB of the Act, could have been made before the Excise Authority. Hence Issue No. (2) is answered in the negative.

Issue No. (3) - Entitlement to interest:

The Plaintiff had challenged the Excise duty payable. The Plaintiff had claimed exemption. The exemption was disallowed. The Plaintiff''s Bank Guarantee was enforced. The Plaintiff was made to pay the balance amount on the Excise duty adjudged to be payable. The Plaintiff paid under protest. The Bank Guarantee was enforced on 8.2.1985. The additional payment was made under protest on 23.11.1985. The Supreme Court ultimately held that the Plaintiff would be entitled to refund of duty if the exemption notification was applicable to the Plaintiff. The exemption has been allowed. The duty paid has been refunded. Hence the Defendants have conceded that the duty earlier claimed and enforced was wrongly claimed and enforced. Hence the Plaintiff''s contention that it was wrongly made to pay the Excise duty is held and accepted to be correct. The Plaintiff is, therefore, entitled to obtain and recover the amount which such enforcement of Bank Guarantee and the payment could have generated if the Plaintiff was not forced to make such wrongful payment. That is to compensate the Plaintiff for what was suffered by such payment extracted from it. That is the amount of interest payable on such amount unjustly taken from the Plaintiff which caused unjust enrichment to the Defendants who wrongfully kept such amount with them from 1985 until the refund was made. Such amount is payable under the common law as a matter of corollary to the principal amount being payable to disallow any unjust enrichment to the party holding back any amount it is not entitled. Hence if the principal amount is not paid and the payment is delayed or detained, interest would be payable as a matter of course. Such interest would be a debt recoverable by the party entitled to the principal amount and hence would be recoverable u/s 3 of the Interest Act, 1978 as well.

There was no provision for payment of such interest on refund of duty paid u/s 11B of the Act. Even the interest payable u/s 11BB of the Act, which came into force from 26.5.1995, is payable from the date of the application of refund. It has been so held in the order of refund made pursuant to the order of the Supreme Court. Hence interest amount, as claimed by the Plaintiff from 1985, cannot be recovered by it under the provisions of the Act and cannot be allowed by the Excise Authority.

However, the Plaintiff is entitled to recovery of such interest as the amounts wrongfully recovered and retained by the Excise Authority under common law and the Interest Act from the respective dates of their recoveries - being from 8.2.1985 upon enforcement of Bank Guarantee of Rs. 1 Lakh and from 23.11.1985 from the amount of Rs. 1292.12 paid by the Plaintiff under protest. Hence Issue No. (3) is answered in the affirmative.

Issue No. (4) - Re : Rate of interest and period of interest payable:

The Plaintiff has claimed interest charged by its Bank for providing the Bank Guarantee. That is at the rate of 19% per annum on the amount of the Bank Guarantee. That would be charged during the period the Bank Guarantee is in force. It has been invoked/enforced on 23.4.1985. Such payment of interest ceased from that date. The Plaintiff is entitled to interest at such reasonable rate that the Plaintiff would obtain under commercial transactions for the usual rate allowed by the Reserve Bank of India and given/charged by commercial banks on such amounts. Such rate varies from time to time. A reasonable rate of interest which would be payable by commercial banks would, as an average, be at the rate of 12% per annum on deposits of such amounts. Hence the Plaintiff must be granted interest on the delayed refund of Excise duty recovered by enforcement of Bank Guarantee of Rs. 1 Lakh on and from 8.2.1985 and for the balance amount of Rs. 1292.12 paid by the Plaintiff under protest on and from 23.11.1985.

The amount of duty was ultimately refunded by and under the order dated 18.09.1996 and paid on 6.6.1997. The Plaintiff sued only on 1.10.1999. The Plaintiff cannot be entitled to any interest for the period between 6.6.1997 to 1.10.1999 when the Plaintiff pursued its remedy in the wrong forum, being the writ jurisdiction without payment of ad valorem Court fee.

The Plaintiff would be entitled to further interest, this being an action in the nature of a commercial transaction to interest at the same rate of 12% p.a. on the principal amount of Bank Guarantee of Rs. 1 Lakh and the additional payment of Rs. 1292.12 made under protest by the Plaintiff, which represents the principal amount claimed in the Suit, from the date of the Suit till the date of this judgment and further at the same rate from the date of the judgment till payment/realization.

Issue No. (5 ) - Re : Relief:

The Suit is decreed for interest @ 12% per annum on the amount of Rs. 1 Lakh from 8.2.1985 and on the amount of Rs. 1292.12 from 23.11.1985 till 6.6.1997 the date of refund of Excise duty and then at the same rate from the date of this Suit till payment/realization. There shall be no order as to costs.