Interest on delayed payment of refund is applicable after three months of receipt of application as per the statutory provisions, delayed on account of show cause and other legal proceedings, even though unintentional shall be considered for delay payment

The Bombay High Court¹ hold that if an application for refund is made, the same is required to be adjudicated within three months of receipt of the application. However, if the refund is granted after three months of receipt of the application, then the applicant would be entitled to interest on such delayed refund as a matter of right.

The interest would cover the period from the date immediately after expiry of the period of three months from the date of receipt of the application till the date of payment of the refund.

Facts of the case: -

A petition was filed by the petitioner who is engaged in the business of providing support services primarily to its foreign affiliates within the meaning of Chapter V of the Finance Act, 1994. In order to provide such services, petitioner receives various input services and avails credit for service tax paid thereon under rule 3 of the CENVAT Credit Rules, 2004.

Petitioner was not paying any service tax on the output services so exported. This resulted into accumulation of CENVAT credit of service tax paid on input services. Petitioner as provider of output services that are exported is entitled to claim refund of the credit of the service tax paid on the input services that remained unutilized.

Hence the petitioner filed refund application to get credit of unutilized tax. But several show cause notices were issued to the petitioner by the Assistant Commissioner as the refund claims of the petitioner should be rejected primarily on the ground that the input services did not have any connection with the output services and thus were not eligible for refund. Responding to such show cause notices, petitioner submitted detailed replies enclosing the requisite documents.

Refund authority passed the refund order partially and for remaining petitioner went to appellate authority, appellate authority passed order in appeal allowing the refund claim of the petitioner.

As the refund were sanctioned beyond three months from the date of filing of refund applications. Therefore, petitioner claimed that they were entitled to interest on delayed payment of refund under section 11BB of the Central Excise Act, 1944 made applicable to service tax vide section 83 of the Finance Act, 1994. But the same was denied by the respondent. Hence petitioner filed a writ before the Hon’ble Court for interest on delayed payment.

Submission on behalf of the respondent

It was submitted by the respondent that there was no intentional delay by them and hence the interest should not be given to the petitioner.

Submission on behalf of the Petitioner

It was stated by the petitioner that refund claims were sanctioned / granted under section 11B of the Central Excise Act, 1944 as made applicable to service tax vide section 83 of the Finance Act, 1994. Refund claims were sanctioned after personal hearing and after scrutinizing the entire relevant documents of the petitioner. There was no intentional delay in sanctioning of refund by the refund sanctioning authority.

Petitioner has asserted that payment of interest under section 11BB of the Central Excise Act, 1944 is mandatory in all the refund applications filed by the petitioner as the refund claims were allowed much after three months of receipt of the applications. Therefore, under section 11BB of the Central Excise Act, 1944 as made applicable to service tax vide section 83 of the Finance Act, 1994, petitioner is entitled to interest as a matter of right for such delayed payment of refund. There is no question as to whether the delay caused in refund is intentional or not intentional. Besides referring to sections 11B and 11BB of the Central Excise Act, 1944 and circular dated 01.10.2002 of the Central Board of Excise and Customs. Petitioner also placed reliance on various judicial pronouncements in the same matter. Section 11BB of CEA, 1944 does not speak about or exempts any delay which is not intentional. The section does not distinguish delay which is intentional and delay which is unintentional.

Judgement by the Hon’ble High Court

It was held by the Bombay High Court that the if an application for refund is made, the same is required to be adjudicated within three months of receipt of the application. But if the refund is granted after three months of receipt of the application, then the applicant would be entitled to interest on such delayed refund as a matter of right. The interest would cover the period from the date immediately after expiry of the period of three months from the date of receipt of the application till the date of payment of the refund.

In the light of the discussions made above, the writ petition succeeds. Petitioner would be entitled to interest under section 11BB of the Central Excise Act, 1944 on the amounts refunded to it.

Thus, from the above judgement, it is clear that if refund is not granted within the time limit prescribed under the Act, then the applicant is entitled to claim interest on such delayed payment of refund.

^[1]2021-TIOL-1170-HC-MUM-ST QUALCOMM INDIA PVT LTD vs UNION OF INDIA AND OTHERS