$~40
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 30.08.2024
+ W.P.(C) 13906/2018 & CM APPL. 11931/2024 (Addl.
Document)
TELECARE NETWORK (INDIA) PVT. LTD. .....Petitioner
Through: Mr. Tarun Gulati, Sr. Adv. with
Mr. Kishore Kunal, Ms. Diva
Deversha and Mr. Anuj Kumar,
Advs.
versus
UNION OF INDIA & ORS. .....Respondents
Through: Mr. Anurag Ahluwalia, CGSC
along with Mr. Hridyanshi
Sharma, Adv. for R-1/UOI.
Ms. Sonu Bhatnagar, SSC
along with Ms. Nishtha Mittal,
Ms. Apurva Singh and Ms. K.S.
Mary Jonet, Advs. for R-2 &
R-3.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA
HON'BLE MR. JUSTICE RAVINDER DUDEJA
J U D G M E N T
YASHWANT VARMA, J. (Oral)
1. The writ petitioner has approached this Court being aggrieved
by the stand of the respondents in failing to grant interest on a sum of
INR 13,16,64,468/-, which according to it was erroneously recovered
during the period of 26 March 2015 to 22 June 2015. The claim for
interest on the delayed disbursal of refund flows in the backdrop of the
respondents having ultimately refunded the deposited amounts on 29
November 2018 and post the rendering of our judgment in the original
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By:KAMLESH KUMAR
Signing Date:02.09.2024
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round of litigation which ensued inter partes and was represented by
W.P.(C) 7853/2017. We find that the entitlement of the petitioner to a
refund had directly arisen for consideration before this Court in the
aforenoted writ petition and the judgment rendered thereon since
1
reported as Telecare Network (India) Pvt. Ltd. vs. Union of India
[and which we shall for the sake of convenience refer to hereinafter as
].
“Telecare I”
2. The Court had in Telecare I taken note of the relevant facts
pertaining to the 103 Bills of Entries in question and which pertained
to the import of mobile phones in India. It also took note of the stand
of the writ petitioner that the self-assessed duty which was to be
deposited on the ICEGATE portal provided no option to the petitioner
to avail of exemptions under the notifications which applied. It was in
the aforesaid backdrop that it is stated to have paid the
2
Countervailing Duty leviable under Sections 3(1) and 3(5) of the
3
Customs Tariff Act, 1975 at the rate of 12.5% as against the 1%
which was payable.
3. The petitioner appears to have asserted that it was constrained
and compelled to pay the excess amount on account of the functional
limitations which beset the ICEGATE portal. This also becomes
apparent from a reading of the following communications which have
been placed on our record. We specifically take note of the inter-
departmental communications dated 21 October 2016 and 04
November 2016 and which are extracted hereinbelow:-
OFFICE OF THE PRINCIPAL COMMISSIONER OF CUSTOMS
“
1
2018:DHC:4916-DB
2
CVD
3
1975 Act
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(IMPORT) AIR CARGO COMPLEX, NEW CUSTOM HOUSE,
NEW
DELHI-110037.
C.NO.VII/l2/ACC/ Import/ Gr,VA/PDC-
43/2015/21593/21/10/2016
dated 21.10.2016
To
The Additional Director General (ICES),
Directorate General of Systems,
Customs & Central Excise,
4th & 5th Floor, Hotel Samrat,
Chanakyapuri, Kautilya Marg,
New Delhi-110021:
(Kind attn: Ms. Arti Srinivas, ADG)
Madam,
Subject: Providing for Si. No. 263A of Notification No. 12/2012 CE
dated 17.03.2012 (as amended) -reg.
Please to the subject mentioned above.
2. In this regard, it is to inform that this Commissionerate had
received applications from the importer M/s Jaina Marketing &
Associates regarding reassessment of Bills of Entry @1% CVD
under Si. No. 263A of Notification No. 12/2012-CE dated
17.03.2012 (as amended) in view of Order in appeal No. CCC(A)
CUS/D-l/IMP/298 to 440/2016 dated 26:05.2015, passed by Shri
Ashutosh Baranwal, Commissioner of Customs (Appeals), Order-in-
Appeal No. CCC(A) CUS/p-l/IMP/638 to 737/2016 dated
26.08.2016 and Order in Appeal No. CCC(A) CUS/D-l/IMP/743/ to
805/2016 dated 05.09.2016 passed by Shri J.R. Panigrahi,
Commissioner of Customs (Appeals) (Copies enclosed). The above
Orders in Appeal have extended the benefit of Notification No.
12/2012-CE dated 1.7.03.2012 Si. No. 263A (as amended) to the
importer.
3. However. During re-assessment it has been noticed chat the
system does not accept Si. No. 263A of the Notification no. 12/2012-
CE dated 17.03.2012. This benefit needs to be extended to Importers
owing to the Supreme Court judgment in the SRF case (CA no. 9440
of 2003-judgment dated 25.03.2015)- The review petition filed by
the department (R.P. (C) No. 2440/2015) CC, Chennai-l Vs M/s
S.R.F. was dismissed by the Hon'ble Supreme Court of 15.07.2016.
However, the relevant notification entries were suitably amended
w.e.f, 17.07.2016 so that from that date onwards the ratio of the SRF
judgment would not automatically apply. Therefore, the system has
to be modified to allow re-assessment of Bs/E filed upto 16,07.2015
with the benefit of said Notification.
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4 Therefore, it is requested that aforesaid Si. No. of the Notification
may be provided for in the system urgently so that re-assessment as
per orders of the Commissioner of Customs (Appeals) may be done
and resentment amongst affected importers may be addressed.
Yours faithfully,
Encl: As above
sd/
(Vivek Johri)
Principal Commissioner of Customs,
(Imports) New Custom House, New Delhi
20.10.2016
xxxx xxxx xxxx
Government of India,
Ministry of Finance,
Directorate of Systems and Data Management
4th & 5th Floor, Hotel Samrat,
Chanakyapuri, New Delhi
Dated 04.11.2016
File No. IV (35) 47/2013-Systems
To
Principal Commissioner of Customs (Import) Air Cargo
Complex, New Customs House, New Delhi.
Sir,
Subject: Providing for Si. No. 263A of Notification No. 12/2012-
CE dated 17.03.2012 (as amended) -reg.
Kindly refer to your letter no. VII/12/ACC-import/Gr-VA/PDC-
43/2015 dated 21.10.2016 on the above subject. As you are aware,
exemption notifications are implemented in the systems through
Directories with, start date and end date for each entry of serial
number. Hence, the same would need to be modified through a patch
to enable exemption for Si. No, 263A of the notifications No.
12/2Q12-CE dated 17.03.2012 with retrospective effect. NIC has
been requested to examine the feasibility for modifying the system
accordingly.
2. In the meanwhile, it is requested that the specific time period
may kindly be intimated to us for effecting necessary change in the
system.
Yours faithfully,
(Arti Agarwal Srinivas)
Additional Director General
”
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By:KAMLESH KUMAR
Signing Date:02.09.2024
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4. Insofar as the question of CVD is concerned, it is common
ground that the issue stands answered in favour of the petitioner-
assessee in light of the judgment rendered by the Supreme Court in
4
M/s SRF Ltd. vs. Commissioner of Customs, Chennai . It was in
the aforesaid context that the Court had in Telecare I noted that the
Revenue appeared to have been, and prior to the judgment handed
down in SRF Ltd., consistently denying benefits of the notification to
assessees on the ground that no CENVAT credit on inputs and capital
goods was admissible to assessees for manufacture of mobile phones
since they were imported as opposed to being manufactured.
5. Taking note of the aforesaid stand, the Court in Telecare I
ultimately held as follows:-
6. It is submitted that following the judgment in the case of Ashok
“
Traders v. Union of India 1987 (32) ELT 262 (Bom) of the Bombay
High Court, it was held that the condition which could not be
satisfied and had to be treated as not satisfied. In the case of SRF
Limited (supra) decided on 26.03.2015, dealing with similar issue as
to whether the assessee is entitled to the benefit of Notification No.
12/2012 CE, the Court held that the I assessee was entitled to
exemption from payment of CVD in view of the law already
declared in the cases of Thermax Private Limited v. Collector of
Customs (Bombay), New Customs House 1992 (4) SCC 440;
Hyderabad Industries Ltd. v. UOI 1999 (5) SCC 15; AIDEK
Tourism Services Private Limited v. Commissioner of Customs,
New Delhi 2015 (7) SCC 429 that for quantification of additional
duty in the case of import, it has to be imagined/presumed that the
article imported had been manufactured or produced in India to
examine what amount of excise duty was leviable. The condition of
availing CENVAT was held to be irrelevant and furthermore, the
presumption that such goods were manufactured in India and excise
duty leviable on it had to be drawn and then an ascertainment would
be essential to determine the extent of CVD to which the importer
would be entitled and the refund application were to be processed on
the basis of the said principle. The demand of the CVD raised in the
said cases was thus set aside.
4
(2015) 14 SCC 596
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7. It is stated that after the declaration of the law in SRF Limited
(supra), in particular, the respondents have been giving the benefit of
concessional rate of duty to others till the statutory amendment took
place in Notification No.12/2012 as held in order dated 28.01.2016
passed in C/51815 to 51874 and 51878 to 51899/2016 by CESTAT.
The Petitioner complains that it has thus been subjected to
discrimination. The petitioner states that since it merely imported the
mobile phones and not manufactured them, it could not possibly
have taken credit in respect of the said imported goods under the
provisions of Credit Rules, 2004 as held by the Supreme Court in
SRF Limited (supra). Thus, the Petitioner was eligible for the
exemption from payment of CVD at enhanced rate; it claimed the
refund application on 24.6.2016 claiming refund of extra amount
paid towards CVD during the period of 26.03.2015 to 22.06.2015.
The refund application of the Petitioner was accompanied by
relevant documents. It is submitted that the Respondents had issued
various deficiency memoranda to the Petitioner (its office letters
dated 29.09.2016, 26.10.2016 and 11.11.2016). It is submitted that in
its letter of 06.10.2016 the petitioner submitted detailed additional
submissions and had disputed the fact that the claim was time barred
under Section 27 of the Act. It was stated inter-alia as under:
"With respect to the eligibility of refund, we would like to
submit that the Company has claimed refund of the amount
deposited in excess of the actual duty payable on import of
mobile phones. The amount paid in excess is not under any of
the provisions of the Act and cannot be termed as 'duty' paid or
payable under this Act. Thus, provisions of Section 27 of Act
shall not be applicable in the instant case. In this respect, we
would like to draw reference from the decision of Hon'ble
Supreme Court in the case of Union of India and Others vs. I.
T.C. Limited, 1993Supp (4) SCC 326, wherein it has been held
that any money which is realized in excess of what is
permissible in law would be a realization made outside the
provisions of the Act. Thus, any amount paid in excess of what
was payable is outside the ambit of law."
”
6. In Telecare I, the respondents appear to have taken the stand
that since the petitioner had consciously paid the duty, the deposit of
amounts would not be liable to be viewed as being contrary to law. It
also appears to have been asserted that the application for refund was
filed beyond the period prescribed under Section 27 of the Customs
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5
Act, 1962 .
7. This is evident from a reading of para 9 of the report which is
extracted hereinbelow:-
9. The Revenue points out that the petitioner paid the duty
“
consciously and after deliberation; therefore, the deposit of amounts
towards duty were not contrary to law. Therefore, consequent action
had to be undertaken by it within limitation prescribed under the Act.
Its inaction in filing the refund application within the prescribed
period of limitation as per Section 27 cannot be overlooked or even
rectified since the said mistake needs to be corrected by filing within
the period of one year from the date of payment only. The delay in
filing of application for refund beyond the prescribed period of one
year cannot be condoned by any adjudicating authority, appellate
authority or Tribunal
.”
8. While dealing with the aforesaid contention, the Court
ultimately held as follows:-
12. There is no dispute about the applicability of SRF Ltd (supra);
“
indeed, the Revenue's refrain during the hearing was that the
amounts could not be refunded because the claims were time-barred
and that the petitioner has an alternative remedy. This Court is of
opinion that the plea of alternative remedy- an unoriginal and
frequently used stereotypical defence by public bodies in such cases
at least dodges the crux of any dispute, i.e the liability of the
concerned public body or agency on merits. Sans any dispute with
respect to facts, this Court finds it entirely unpersuasive, since
Article 144 of the Constitution, compels all authorities to give effect
to the law declared by the Supreme Court (as in this case, the SRF
Limited judgment). The other plea which the Customs had relied on,
to defeat the petitioner's refund application was Section 27 (3) which
confines refunds to the situations contemplated in Section 27 (2),
notwithstanding any judgment, order or decree of the court. This
Court is at a loss to observe the relevance of that reasoning, given
that SRF Limited (supra) had ruled in principle that import implied a
deemed manufacture, without any corresponding obligation on the
part of the importer to have availed CENVAT credit. As such, the
amount claimed was not duty and could not have been recovered by
the Customs authorities in the first instance, given the declaration of
law in SRF Limited (supra). Therefore, they cannot now seek shelter
under Section 27 (3) to resist a legitimate refund claim.
”
5
1962 Act
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The writ petition was ultimately allowed with the impugned order
being quashed and a direction being framed for the refund application
to be decided within a period of ten weeks in accordance with law.
9. As noted hereinabove, the 103 Bills of Entries were submitted
between 26 March 2015 to 22 June 2015. By this time, the law with
respect to an importer being required to make a declaration for
availing CENVAT credit had already come to be duly declared and
enunciated by the Supreme Court in SRF Ltd., and which judgment
had come to be pronounced on 26 March 2015. It appears that
realizing the mistake committed in making deposits towards CVD at
the rate of 12.5% led to the petitioner filing a refund application on 24
June 2016. That application had come to be rejected on 07 March
2017 and which formed subject matter of challenge in the first writ
petition.
10. However, and post the judgment handed down by this Court on
06 August 2018, the petitioner filed another application on 23 October
2018 requesting the respondents to process its claim for refund. It was
acting upon the said application that the principal amount was
refunded on 29 November 2018.
11. It is also pertinent to note that the respondents while passing the
impugned order do not dispute the entitlement of the petitioner to the
refund of the principal amount as would be evident from the following
extracts of that order:-
7f. In view of the above I find that the party was liable to pay CVD
“
@ 1% in terms of S.No. 263 A of the Notification No. 12/2012-CE
dated 17.03.2012, as amended, read with condition no. 16 of the said
Notification, on import of mobile phones against 103 Bills of Entry
filed during 26.03.2015 to 22.06.2015. Whereas, it paid the said
CVD @ 12.5% due to nonawareness of the law. However as soon as
they got to know it, they filed the refund for the amount paid in
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excess of 1%.
8. The Hon'ble High Court in its order dated 06.08.2018 has also
observed that SRF Limited (supra) had ruled in principle that import
implied a deemed manufacture, without any corresponding
obligation on the part of the importer to have availed CENVAT
credit. As such, the amount claimed was not duty and could not have
been recovered by the Customs authorities in the first instance, given
the declaration of law in SRF Limited (supra).
8a. In other words, the Hon'ble High Court has observed that the
amount deposited in excess of 1% CVD (amount claimed as refund
i.e. Rs. 13,16,64,468/-) does not amount to DUTY and the relevant
sections of the Act applicable to deposit and refund of duty cannot
be applied to this amount deposited in excess.
8b. Accordingly, as per the well settled laws as discussed above, the
party has paid excess amount of Rs. 13,16,64,468/ and is liable for
refund for the same.
”
12. The solitary dispute which now survives for our consideration is
whether the respondents are justified in denying the writ petitioner
interest in terms as contemplated under Section 27A of the 1962 Act.
The said provision stands couched in the following terms:-
[27-A. Interest on delayed refunds
“
If any duty ordered to be refunded under sub-section (2) of
section 27 to an applicant is not refunded within three months from
the date of receipt of application under sub-section (1) of that
section, there shall be paid to that applicant interest at such rate, not
below [five] per cent and not exceeding thirty per cent per annum as
is for the time being fixed [by the Central Government, by
notification in the Official Gazette], on such duty from the date
immediately after the expiry of three months from the date of receipt
of such application till the date of refund of such duty:
PROVIDED that where any duty, ordered to be refunded
under sub-section (2) of section 27 in respect of an application under
sub-section (1) of that section made before the date on which the
Finance Bill, 1995 receives the assent of the President, is not
refunded within three months from such date, there shall be paid to
the applicant interest under this section from the date immediately
after three months from such date, till the date of refund of such
duty.
Explanation : Where any order of refund is made by the
Commissioner (Appeals), Appellate Tribunal [, National Tax
Tribunal] or any court against an order of the [Assistant
Commissioner of Customs or Deputy Commissioner of Customs]
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Signing Date:02.09.2024
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under sub-section (2) of section 27, the order passed by the
Commissioner (Appeals), Appellate Tribunal [, National Tax
Tribunal] or, as the case may be, by the court shall be deemed to be
an order passed under that sub-section for the purposes of this
section.]
”
13. Before us, Ms. Bhatnagar learned counsel appearing for the
respondents contended that there was no delay caused by the
respondents in attending to the claim for refund since the application
made on 23 October 2018 after the judgment rendered by this Court,
was disposed of on 14 November 2018 itself and thus within three
months of the making of the said application as statutorily stipulated.
14. It was additionally argued that the interest which is spoken of in
Section 27A is liable to be paid on duty that may have been
“ ”
deposited. According to Ms. Bhatnagar, the Court in Telecare I
having held that the amount claimed was not duty, Section 27A
consequently would not apply.
15. In our considered opinion, the stand as taken is not only
misconceived, it is also wholly unjust and patently arbitrary. We may
at the outset note that the observation which is alluded to appears in
paragraph 12 of the original judgment and where the Court had
observed that since the amount which has been claimed by the writ
petitioner was not duty , it could have never been recovered by the
“ ”
Customs authorities in the first instance.
16. In our considered opinion, the observation of the amount
claimed not being duty is clearly being misinterpreted and construed
dehors the context in which it appears. All that the Court intended to
convey was that the amount which the petitioner had mistakenly
deposited, could never have been recovered or retained by the
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Customs authorities. This is in light of the legal position which stood
duly enunciated by the Supreme Court in SRF Ltd. itself. Therefore,
the observation of the amount not being duty is liable to be understood
in the aforesaid context.
17. When Telecare I spoke of the amount not being duty , it
“ ”
essentially meant that the amount was not one which could have been
legally or legitimately claimed as an impost flowing from the Act.
Duty would ordinarily mean a compulsory exaction of money lawfully
payable under the Act. However, it would be wholly incorrect to hold
that a payment made under a mistaken belief of a liability placed
under the Act would fall outside the ken of Section 27A. This is quite
apart from us having no hesitation in holding that the stand of the
respondents is wholly unjust, inequitable and legally unsustainable.
18. In view of the aforesaid conclusions, we find that the contention
of inapplicability of Section 27A can neither be countenanced nor
sustained.
19. Undisputedly, the original applications for refund had been
moved as far back as 24 June 2016. Bearing in mind the findings
which came to be returned and recorded in paragraph 9 of the original
judgment, it is also not permissible for the respondents to now assert
that the same would be hit by any prescription of limitation.
20. We note that insofar as the issue of payments made under a
mistaken assumption of liability and the corresponding obligation to
refund the same is one which has been consistently taken by various
High Courts. In Commissioner of Central Excise (Appeals),
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6
Bangalore vs. KVR Construction , the Karnataka High Court
pertinently observed:-
16. We are not concerned with the other conditions of section 11B
“
of the Act because it is not the case of the appellant-Department that
the burden of service tax was passed on to any other person. As a
matter of fact, the controversy in this appeal revolves around the
maintainability of the very application filed under section 11B of the
Central Excise Act and whether section 11 applies to the facts of the
present case at all. In the case of Mafatlal Industries Ltd. v. Union of
India [1998] 111 STC 467 (SC) ; (1997) 89 ELT 247 (SC), the
question was with regard to the refund of Central excise and customs
duties. It was held that all claims except where levy is held to be
unconstitutional, are to be preferred and adjudicated upon under
section 11B of the Central Excise Act, 1944 or under section 27 of
the Customs Act, 1962 and subject to claimant establishing that
burden of duty has not been passed on to a third party. In such
circumstances, it was held, no civil suit for refund of duty is
maintainable. It also observes that writ jurisdiction of High Courts
under article 226 and of the Supreme Court under article 32 remains
unaffected by the provisions of section 11B of the Act. It was further
held that concerned court while exercising the jurisdiction under the
said articles, will have due regard to the legislative intent manifested
by the provisions of the Act and the writ petition would naturally be
considered and disposed of in the light of the provisions of section
11B of the Act. It has been held therein that power under article 226
has to be exercised to effectuate the regime of law and not for
abrogating it, as the power under article 226 is conceived to serve the
ends of law and not to transgress them. At paragraph 113 of the said
judgment, they classify the various refund claims into three groups
or categories (page 613 in 111 STC):
(i) The levy is unconstitutional outside the provisions of the Act or
—
not contemplated by the Act.
(ii) The levy is based on misconstruction or wrong or erroneous
interpretation of the relevant provisions of the Act, Rules or
notifications ; or by failure to follow the vital or fundamental
provisions of the Act or by acting in violation of the fundamental
principles of judicial procedure.
(iii) Mistake of law the levy or imposition was unconstitutional or
—
illegal or not exigible in law (without jurisdiction) and, so found in a
proceeding initiated not by the particular assessee, but in a
proceeding initiated by some other assessee either by the High Court
6
2010 SCC OnLine Kar 5419
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or the Supreme Court, and as soon as the assessee came to know of
the judgment (within the period of limitation), he initiated action for
refund of the tax paid by him, due to mistake of law.
xxxx xxxx xxxx
19. If this court ultimately concludes that section 11B of the Act is
applicable to the facts of the present case, then, the argument of the
learned counsel for the appellants that writ petition was not
maintainable would merit consideration. Therefore, at this stage, we
will not consider the matter regarding maintainability of the writ
petition, as first we have to look to the provisions of section 11B of
the Act and then decide whether section 11B is applicable to the
facts of the case as finding thereon would have bearing for
considering the issue of maintainability of writ petition. Section 11B
of the Central Excise Act reads as under :
xxxx xxxx xxxx
20. From the reading of the above section, it refers to claim for
refund of duty of excise only, it does not refer to any other amounts
collected without authority of law. In the case on hand, admittedly,
the amount sought for as refund was the amount paid under mistaken
notion which even according to the Department was not liable to be
paid.
21. According to the appellant, the very fact that the said amounts
are paid as service tax under the Finance Act, 1994 and also filing of
an application in form R of the Central Excise Act would indicate
that the applicant was intending to claim refund of the duty with
reference to section 11B, therefore, now it is not open to him to go
back and say that it was not refund of duty. No doubt in the present
case, form R was used by the applicant to claim refund. It is the very
case of the petitioner that they were exempted from payment of such
service tax by virtue of circular dated September 17, 2004 and this is
not denied by the Department and it is not even denying the nature of
construction/services rendered by the petitioner was exempted from
to payment of service tax. What one has to see is whether the amount
paid by the petitioner under mistaken notion was payable by the
petitioner. Though under the Finance Act, 1994 such service tax was
payable by virtue of notification, they were not liable to pay, as there
was exemption to pay such tax because of the nature of the
institution for which they have made construction and rendered
services. In other words, if the respondent had not paid those
amounts, the authority could not have demanded the petitioner to
make such payment. In other words, the authority lacked authority to
levy and collect such service tax. In case, the Department were to
demand such payments, the petitioner could have challenged it as
unconstitutional and without authority of law. If we look at the
converse, we find mere payment of amount, would not authorize the
Department to regularise such payment. When once the Department
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had no authority to demand service tax from the respondent because
of its circular dated September 17, 2004, the payment made by the
respondent- company would not partake the character of "service
tax" liable to be paid by them. Therefore, mere payment made by the
respondent will neither validate the nature of payment nor the nature
of transaction. In other words, mere payment of amount would not
make it a "service tax" payable by them. When once there is lack of
authority to demand "service tax" from the respondent-company, the
Department lacks authority to levy and collect such amount.
Therefore, it would go beyond their purview to collect such amount.
When once there is lack of authority to collect such service tax by
the appellant, it would not give them the authority to retain the
amount paid by the petitioner, which was initially not payable by
them. Therefore, mere nomenclature will not be an embargo on the
right of the petitioner to demand refund of payment made by them
under mistaken notion.
xxxx xxxx xxxx
24. In the case of Commissioner of Central Excise, Bangalore III v.
Motorola India Pvt. Ltd. reported in (2006) 206 ELT 90 (Karn), the
Division Bench of this court considered similar issue. It was a case
where excess amount was paid over duty under the Central Excise
Act on the direction of the Department. There was an application for
refund of amount and the same came to be rejected by the Assistant
Commissioner on the ground of lapse of time. It was confirmed by
both the appellate authority and also the Tribunal. Aggrieved by the
order of the Tribunal, the Revenue came up before the High Court.
Their Lordships of the Division Bench held that the order of the
Tribunal to allow the claim on the basis that amount paid by mistake
cannot be termed as duty in the said case was justified and therefore
applying the law laid down in the decision of the apex court in the
case of India Cements Ltd. v. Collector of Central Excise (1989) 41
ELT 358 dismissed the appeal.
25. Now, we are faced with a similar situation where the claim of the
respondent/assessee is on the ground that they have paid the amount
by mistake and therefore they are entitled for the refund of the said
amount. If we consider this payment as service tax and duty payable,
automatically, section 11B would be applicable. When once there
was no compulsion or duty cast to pay this service tax, the amount of
Rs. 1,23,96,948 paid by petitioner under mistaken notion, would not
be a duty or "service tax" payable in law. Therefore, once it is not
payable in law there was no authority for the Department to retain
such amount. By any stretch of imagination, it will not amount to
duty of excise to attract section 11B. Therefore, it is outside the
purview of section 11B of the Act.
”
21. The Madras High Court in 3E Infotech vs. Customs, Excise &
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7
Service Tax Appellate Tribunal & Anr. propounded a similar
principle as would be evident from the following extract of that
decision:-
12. On an analysis of the precedents cited above, we are of the
“
opinion, that when service tax is paid by mistake a claim for refund
cannot be barred by limitation, merely because the period of
limitation under Section 11B had expired. Such a position would be
contrary to the law laid down by the Hon ble Apex Court, and
’
therefore we have no hesitation in holding that the claim of the
Assessee for a sum of Rs. 4,39,683/- cannot be barred by limitation,
and ought to be refunded. There is no doubt in our minds, that if the
Revenue is allowed to keep the excess service tax paid, it would not
be proper, and against the tenets of Article 265 of the Constitution of
India. On the facts and circumstances of this case, we deem it
appropriate to pass the following directions:
—
(a) The Application under Section 11B cannot be rejected on
the ground that is barred by limitation, provided for under
Section.
(b) The claim for return of money must be considered by the
authorities.
”
22. The Bombay High Court in M/s Parijat Construction vs.
8
Commissioner of Central Excise while rejecting an argument that
was similar to that advanced by the respondents before us, held as
follows:-
5. We are of the view that the issue as to whether limitation
“
prescribed under Section 11 B of the said Act applies to a refund
claimed in respect of service tax paid under a mistake of law is no
longer res integra. The two decisions of the Division Bench of this
Court in Hindustan Cocoa (Supra) and Commissioner of Central
Excise, Nagpur v. SGR Infratech Ltd. (Supra) are squarely
applicable to the facts of the present case.
6. Both decisions have held the limitation prescribed under Section
11 B of the said Act to be not applicable to refund claims for service
tax paid under a mistake of law. The decision of the Supreme Court
in the case of Collector of C.E., Chandigarh v. Doaba Co-Operative
Sugar Mills (Supra) relied upon by the Appellate Tribunal has in
7
2018 SCC OnLine Mad 13637
8
2017 SCC OnLine Bom 9480
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applying Section 11 B, limitation made an exception in case of
refund claims where the payment of duty was under a mistake of
law. We are of the view that the impugned order is erroneous in that
it applies the limitation prescribed under Section 11 B of the Act to
the present case were admittedly Appellant had paid a service tax on
Commercial or Industrial Construction Service even though such
service is not leviable to service tax. We are of the view that the
decisions relied upon by the Appellate Tribunal do not support the
case of the Respondent in rejecting the refund claim on the ground
that it was barred by limitation. We are, therefore, of the view that
the impugned order is unsustainable.
”
23. This Court in M/s Om Gems and Jewellery vs. Principal
9
Commissioner of International Customs & Ors. had an occasion to
review the entire body of precedent dealing with the issue of refund in
some detail. We deem it apposite to extract the following passages
from that decision:-
We note that interest has been duly recognized as being a
“19.
necessary corollary to a wrongful retention of capital. We deem it
apposite to extract the following passages from the decision of a
Division Bench of the Allahabad High Court in Wig Brother
(Builder & Engineers) v. Union of India:-
It may be mentioned that money doubles in six
“27.
years (because of interest). In this case, the petitioner has
avoided payment of cess for about 12 years, counting
from the date of the demand notice dated 20.7.1991.
Thus, even though we are dismissing this petition, the
petitioner has really won the case, because he did not
have to pay interest from 20.7.1991 till today.
28. It may be mentioned that there is misconception
about interest. Interest is not a penalty or punishment at
all but is the normal accretion on capital. Had the
petitioner paid the amount in question in July, 1991,
when it was due, the respondents would have invested
the same somewhere and earned interest thereon. Instead,
the petitioner has kept the money with himself for about
12 years and has earned interest thereon. Hence for every
Rs. 100 which the petitioner had to pay in July, 1991, he
has in fact, earned an additional Rs. 300. This is because
Rs. 100 becomes Rs. 200 after six years, and in another
9
2023 SCC OnLine Del 7932
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six years this Rs. 200 doubles and becomes Rs. 400.
Thus, even though we have dismissed this writ petition
today, the petitioner has really not only won the case
(because of the interim order of this Court) he has really
earned Rs. 300 for every Rs. 100 he had to pay. Thus,
even though we are dismissing this petition the petitioner
has got three time more amount than what he has to pay
now. All this happened because of the interim order of
this Court staying the demand.”
20. Reiterating the principles which were laid down in Wig Brother,
Katju J. while speaking as a member of the Bench of the Supreme
17
Court in Alok Shanker Pandey v. Union of India had held as
follows:
—
We are of the opinion that there is no hard-and-fast
“8.
rule about how much interest should be granted and it all
depends on the facts and circumstances of each case. We
are of the opinion that the grant of interest of 12% per
annum is appropriate in the facts of this particular case.
However, we are also of the opinion that since interest
was not granted to the appellant along with the principal
amount, the respondent should then in addition to the
interest at the rate of 12% per annum also pay to the
appellant interest at the same rate on the aforesaid
interest from the date of payment of instalments by the
appellant to the respondent till the date of refund of this
amount, and the entire amount mentioned above must be
paid to the appellant within two months from the date of
this judgment.
9. It may be mentioned that there is misconception about
interest. Interest is not a penalty or punishment at all, but
it is the normal accretion on capital. For example if A
had to pay B a certain amount, say 10 years ago, but he
offers that amount to him today, then he has pocketed the
interest on the principal amount. Had A paid that amount
to B 10 years ago, B would have invested that amount
somewhere and earned interest thereon, but instead of
that A has kept that amount with himself and earned
interest on it for this period. Hence, equity demands that
A should not only pay back the principal amount but also
the interest thereon to B.”
21. We further note that the issue of interest being paid on monies
unjustifiably retained, albeit in the context of pre-deposits, again fell
for consideration of the Supreme Court in Sandvik Asia
18
Ltd. v. CIT . While dealing with the liability of the department to
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bear that burden in case of unjustified retention of monies, the
Supreme Court had observed as follows:
—
In our view, there is no question of the delay being
“29.
“justifiable” as is argued and in any event if the Revenue
takes an erroneous view of the law, that cannot mean that
the withholding of monies is “justifiable” or “not
wrongful”. There is no exception to the principle laid
down for an allegedly “justifiable” withholding, and
even if there was, 17 (or 12) years' delay has not been
and cannot in the circumstances be justified.
xxxx xxxx xxxx
31. At the initial stage of any proceedings under the Act
any refund will depend on whether any tax has been paid
by an assessee in excess of tax actually payable to him
and it is for this reason that Section 237 of the Act is
phrased in terms of tax paid in excess of amounts
properly chargeable. It is, however, of importance to
appreciate that Section 240 of the Act, which provides
for refund by the Revenue on appeal, etc., deals with all
subsequent stages of proceedings and therefore is
phrased in terms of “any amount” becoming due to an
assessee.
32. The Delhi High Court in Goodyear India Ltd.
case [(2001) 249 ITR 527 (Del)] held that an assessee is
entitled to further interest under Section 244 of the Act
on interest under Section 214 of the Act which had been
withheld by the Revenue. The case of the Revenue was
that interest payable to an assessee under Section 214 of
the Act was not a refund as defined in Section 237 of the
Act and hence no interest could be granted to the
assessee under Section 244 of the Act. The Court held
that for this purpose Section 240 of the Act was relevant
any amount becoming due
which referred to refund of “
to an assessee
” and that the said phrase would include
interest and hence the assessee was entitled to further
interest on interest wrongfully withheld. It is also
important to appreciate that the Delhi High Court also
referred to the Gujarat High Court decision in D.J. Works
case [(1992) 195 ITR 227 (Guj)] and read it as taking the
same view. This supports the view of the appellant on the
correct reading of the Gujarat decision.
xxxx xxxx xxxx
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46. The facts and the law referred to in paragraph (supra)
would clearly go to show that the appellant was
undisputably entitled to interest under Sections 214 and
244 of the Act as held by the various High Courts and
also of this Court. In the instant case, the appellant's
money had been unjustifiably withheld by the
Department for 17 years without any rhyme or reason.
The interest was paid only at the instance and the
intervention of this Court in Civil Appeal No. 1887 of
1992 dated 30-4-1997. Interest on delayed payment of
refund was not paid to the appellant on 27-3-1981 and
30-4-1986 due to the erroneous view that had been taken
by the officials of the respondents. Interest on refund was
granted to the appellant after a substantial lapse of time
and hence it should be entitled to compensation for this
period of delay. The High Court has failed to appreciate
that while charging interest from the assesses, the
Department first adjusts the amount paid towards interest
so that the principle amount of tax payable remains
outstanding and they are entitled to charge interest till the
entire outstanding is paid. But when it comes to granting
of interest on refund of taxes, the refunds are first
adjusted towards the taxes and then the balance towards
interest. Hence as per the stand that the Department takes
they are liable to pay interest only up to the date of
refund of tax while they take the benefit of assesses’
funds by delaying the payment of interest on refunds
without incurring any further liability to pay interest.
This stand taken by the respondents is discriminatory in
nature and thereby causing great prejudice to lakhs and
lakhs of assesses. Very large number of assesses are
adversely affected inasmuch as the Income Tax
Department can now simply refuse to pay to the assesses
amounts of interest lawfully and admittedly due to them
as has happened in the instant case. It is a case of the
appellant as set out above in the instant case for
Assessment Year 1978-1979, it has been deprived of an
amount of Rs. 40 lakhs for no fault of its own and
exclusively because of the admittedly unlawful actions of
the Income Tax Department for periods ranging up to 17
years without any compensation whatsoever from the
Department. Such actions and consequences, in our
opinion, seriously affected the administration of justice
and the rule of law.
P.
47. The word “compensation” has been defined in
rd
Ramanatha Aiyar's Advanced Law Lexicon, 3 Edn.,
2005, p. 9
18 as follows:“An act which a court orders to
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be done, or money which a court orders to be paid, by a
person whose acts or omissions have caused loss or
injury to another in order that thereby the person
damnified may receive equal value for his loss, or be
made whole in respect of his injury; the consideration or
price of a privilege purchased; something given or
obtained as an equivalent; the rendering of an equivalent
in value or amount; an equivalent given for property
taken or for an injury done to another; the giving back an
equivalent in either money which is but the measure of
value, or in actual value otherwise conferred; a
recompense in value; a recompense given for a thing
received; recompense for the whole injury suffered;
remuneration or satisfaction for injury or damage of
every description; remuneration for loss of time,
necessary expenditures, and for permanent disability if
such be the result; remuneration for the injury directly
and proximately caused by a breach of contract or duty;
remuner
ation or wages given to an employee or officer.”
48. There cannot be any doubt that the award of interest
on the refunded amount is as per the statutory provisions
of law as it then stood and on the peculiar facts and
circumstances of each case. When a specific provision
has been made under the statute, such provision has to
govern the field. Therefore, the court has to take all
relevant factors into consideration while awarding the
rate of interest on the compensation
.”
22. While we are conscious of the correctness of the decision
in Sandvik Asia having been doubted by the Supreme Court and the
matter presently stands referred for the consideration of a Larger
Bench in light of the order passed in Commissioner of Income Tax,
19
Gujarat v. Gujarat Fluoro Chemicals , we note that while framing
that reference the Supreme Court has not doubted the compensatory
character of interest that may be imposed in case of unjustified
retention of monies of an assessee. Their Lordships doubted the view
taken on the facts of Sandvik Asia bearing in mind that advance tax
or tax deducted at source loses its identity once it gets subsumed in a
demand of tax created in terms of an assessment.
23. A more lucid explanation of the liability to pay interest is found
in the decision of the Supreme Court in Union of India v. Tata
20
Chemicals Ltd. . Highlighting the compensatory element of such
interest being provided by courts, the Supreme Court had held as
follows:
—
37.
“ A “tax refund” is a refund of taxes when the tax
liability is less than the tax paid. As per the old section
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an assessee was entitled for payment of interest on the
amount of taxes refunded pursuant to an order passed
under the Act, including the order passed in an appeal. In
the present fact scenario, the deductor/assessee had paid
taxes pursuant to a special order passed by the assessing
officer/Income Tax Officer. In the appeal filed against
the said order the assessee has succeeded and a direction
is issued by the appellate authority to refund the tax paid.
The amount paid by the resident/deductor was retained
by the Government till a direction was issued by the
appellate authority to refund the same. When the said
amount is refunded it should carry interest in the matter
of course. As held by the Courts while awarding interest,
it is a kind of compensation of use and retention of the
money collected unauthorisedly by the Department.
When the collection is illegal, there is corresponding
obligation on the Revenue to refund such amount with
interest inasmuch as they have retained and enjoyed the
money deposited. Even the Department has understood
the object behind insertion of Section 244-A, as that, an
assessee is entitled to payment of interest for money
remaining with the Government which would be
refunded. There is no reason to restrict the same to an
assessee only without extending the similar benefit to a
resident/deductor who has deducted tax at source and
deposited the same before remitting the amount payable
to a non-resident/foreign company.
38. Providing for payment of interest in case of refund of
amounts paid as tax or deemed tax or advance tax is a
method now statutorily adopted by fiscal legislation to
ensure that the aforesaid amount of tax which has been
duly paid in prescribed time and provisions in that behalf
form part of the recovery machinery provided in a taxing
statute. Refund due and payable to the assessee is debt-
owed and payable by the Revenue. The Government,
there-being no express statutory provision for payment of
interest on the refund of excess amount/tax collected by
the Revenue, cannot shrug off its apparent obligation to
reimburse the deductors lawful monies with the accrued
interest for the period of undue retention of such monies.
The State having received the money without right, and
having retained and used it, is bound to make the party
good, just as an individual would be under like
circumstances. The obligation to refund money received
and retained without right implies and carries with it the
right to interest. Whenever money has been received by a
party which ex ae quo et bono ought to be refunded, the
right to interest follows, as a matter of course.”
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24. What flows from the aforesaid precedents is of the State being
under a positive obligation to refund monies paid under a mistake or
absent a liability lawfully imposed. Taking a position contrary to the
above would clearly be in breach of the constitutional ethos
underlying Article 265 of the Constitution itself. It would be wholly
unjust and arbitrary for the State to retain such moneys especially
where there be no dispute with respect to the assessee otherwise being
under no statutory obligation to pay the tax or duty.
25. The restitutory element of interest is yet another aspect which
assumes significance in the facts of the present case and which was
succinctly explained and acknowledged by the Supreme Court in
South Eastern Coalfields Ltd. vs. State of Madhya Pradesh &
10
Ors. as under:-
21. Interest is also payable in equity in certain circumstances. The
“
rule in equity is that interest is payable even in the absence of any
agreement or custom to that effect though subject, of course, to a
contrary agreement (see Chitty on Contracts, 1999 Edn., Vol. II,
Para 38-248 at p. 712). Interest in equity has been held to be
payable on the market rate even though the deed contains no
mention of interest. Applicability of the rule to award interest in
equity is attracted on the existence of a state of circumstances
being established which justify the exercise of such equitable
jurisdiction and such circumstances can be many.
xxxx xxxx xxxx
28. That no one shall suffer by an act of the court is not a rule
confined to an erroneous act of the court; the “act of the court”
embraces within its sweep all such acts as to which the court may
form an opinion in any legal proceedings that the court would not
have so acted had it been correctly apprised of the facts and the
law. The factor attracting applicability of restitution is not the act
of the court being wrongful or a mistake or error committed by the
court; the test is whether on account of an act of the party
persuading the court to pass an order held at the end as not
sustainable, has resulted in one party gaining an advantage which it
10
(2003) 8 SCC 648
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would not have otherwise earned, or the other party has suffered an
impoverishment which it would not have suffered but for the order
of the court and the act of such party. The quantum of restitution,
depending on the facts and circumstances of a given case, may take
into consideration not only what the party excluded would have
made but also what the party under obligation has or might
reasonably have made. There is nothing wrong in the parties
demanding being placed in the same position in which they would
have been had the court not intervened by its interim order when at
the end of the proceedings the court pronounces its judicial verdict
which does not match with and countenance its own interim
verdict. Whenever called upon to adjudicate, the court would act in
conjunction with what is real and substantial justice. The injury, if
any, caused by the act of the court shall be undone and the gain
which the party would have earned unless it was interdicted by the
order of the court would be restored to or conferred on the party by
suitably commanding the party liable to do so. Any opinion to the
contrary would lead to unjust if not disastrous consequences.
Litigation may turn into a fruitful industry. Though litigation is not
gambling yet there is an element of chance in every litigation.
Unscrupulous litigants may feel encouraged to approach the courts,
persuading the court to pass interlocutory orders favourable to
them by making out a prima facie case when the issues are yet to
be heard and determined on merits and if the concept of restitution
is excluded from application to interim orders, then the litigant
would stand to gain by swallowing the benefits yielding out of the
interim order even though the battle has been lost at the end. This
cannot be countenanced. We are, therefore, of the opinion that the
successful party finally held entitled to a relief assessable in terms
of money at the end of the litigation, is entitled to be compensated
by award of interest at a suitable reasonable rate for the period for
which the interim order of the court withholding the release of
money had remained in operation.
29. Once the doctrine of restitution is attracted, the interest is often
a normal relief given in restitution. Such interest is not controlled
by the provisions of the Interest Act of 1839 or 1978.”
26. Accordingly, and for all the aforesaid reasons, we allow the
instant writ petition and hold the respondents liable to pay interest
from the date of the moving of the original application on 24 June
2016. The said interest would flow up to 29 November 2018 when
refunds were ultimately effected.
27. Bearing in mind the facts which emerge from the record, mainly
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of the writ petitioner having been compelled to litigate and the stand
of the respondents being thoroughly unfair and unjust, we also impose
costs of INR 1 lakh on the respondents.
YASHWANT VARMA, J.
RAVINDER DUDEJA, J.
AUGUST 30, 2024/
RW
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