UNION OF INDIA & ANR.versusSHREEJI COLOUR CHEM INDUSTRIES

                         [2008] 13 S.C.R. 502                           Y'




A                    UNION OF INDIA & ANR.
                                v.
              SHREEJI COLOUR CHEM INDUSTRIES
                 (Civil Appeal No. 5643 of 2008)
                       SEPTEMBER 15, 2008                               ...
B
        [DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
                       SHARMA, JJ.)

          Central Excise Act, 1944 - s. 11 BB - Interest for delayed
c   refund of amount payable under the Act and the Rules - En-
    titlement to - Held: On fact~, assessee entitled to interest from
    12th April, 2004 to 26th August, 2004- Claim of assessee for
    equitable interest, however, not tenable, since assessee made
    no written demand therefor - Central Excise Rules, 1944 -
    r.173L.
D
       Respondent claimed refund of amount payable un-
  der the Central Excise Act, 1944 and the Central Excise
  Rules, 1944. The claim was rejected b~ the Assistant Com-
  missioner and the Commissioner, but upheld by the Ap-
E pellate Tribunal.
       Respondent was subsequently sanctioned refund
  on 27th August, 2004. Earlier, on 12th January, 2004, Re-
  spondent had filed application claiming statutory inter-
  est for delay in refund. The High Court granted interest at            r
F the rate of 9% w.e.f. the first day on which the Asstt. Com-
  missioner rejected the prayer for refund.
        Aggrieved, Appellant contended before this Court
  that interest became payable only after three months from
  the date of application for interest. Appellant also con-
G
  tested claim for equitable interest by the Respondent.
          Partly allowing the appeal, the Court                           ...-
          HELD: In terms of s.1188 (1) of the Central Excise
H                                 502
              UNION OF INDIA & ANR. v. SHREEJI COLOUR                503
                         CHEM INDUSTRIES

       Act, 1944, Respondent-assessee is entitled to interest A
       from 12th April, 2004 to 26th August, 2004. As regards
       claim of interest on equitable ground, a written demand
       therefor is imperative. In the instant case no such written
       demand was mad~. [Paras 9,10) [507-C & DJ
             Modi Industries Ltd., Modinagar & Ors. v. Commissioner B
       of Income Tax, De/bi & Ors. [1995 (6) SCC 396) and Clariant
       International Ltd. v. Securities and Exchange Board of India,
       2004 (8) sec 524 - relied on.

           Sandvik Asia Ltd. v. Commissioner of Income Tax I, Pune          c
       and Ors. [2006 (2) sec 508) - referred to .
                              .Case Law Reference
            2oos (2) sec 50B            referred to         Para 3
            1995 (6) sec 396            relied on           Para 7          D
            2004 (8) sec 524            relied on           Para 8
            CIV_ILAPPELLATE JURISDCTION : Civil-Appeal No. 5643.
       of 2008
            From the Final Judgment and Order dated 3.3.2006 of             E
       the High Court of Gujarat at Ahmedabad .in S.C.A. No. 1315/
       2006

            Naresh Kaushik, Asha G. Nair and B. Krishna Prasad for
       the Appellants.                                       ··
                                                                            F   -
            Dayan Krishnan, Ankul Saigal, Bina Gupta and Gaurav
       Singh for the Respondent.

            The Judgment of the Court was delivered by
             Dr. ARIJIT. PASAYAT, J. 1. Leave,granted.                      G
                 ..
            2. Challenge ·in this appeal is to the judgment of a Division
,...   Bench of the Gujarat High Court directing ~grant of interest to
       the respondent for alleged delayed refund of amount payable
       under Central Excise Act, 1944 (in short the 'Act') and Central
       Excise Rules, 1944 (in short the 'Rules').                           H
    504       SUPREME COURT REPORTS                 [2008] 13 S.C.R.    ..... •

A         3. Background facts are undisputed and are essentially
    as follows:
        Refund was claimed by the respondent before the Assis-
  tant Commissioner, Central Excise and Customs Division IV,
  Vadodara, for refund of Rs.2,50,494.31. The applications which        --<
B were filed under Rule 173L of the Rules were rejected by the
  Assistant Commissioner by order dated 24.7.1991. Being ag-
  grieved by the said order, respondent preferred an appeal be-
  fore the Commissioner of Appeal, Mumbai who remitted the
  matter for de novo consideration. After hearing the respondent,
c the said applications were again rejected. Respondent again
  preferred an appeal on 21.5.1996 before the Commissioner of
  Appeal which was dismissed by order dated 31.8.1998. Being
  aggrieved by the said order, the respondent preferred an ap-
  peal before the Customs Excise and Gold Control Appellate
D Tribunal West Regional Bench (in short the 'CEGAT'). By order         .,..-
  dated 25.11.2003 CEGAT allowed the appeal and inter alia
  held as follows:
          "I find no reason to reject the claims of refund under Rule
          173L amounted to Rs.2,50,454/- in all. The same should
E         be paid to the appellant without delay."
       The respondent filed an application before the Assistant
  Commissioner on 12.1.2004 requesting for refund of the amount
  along with statutory interest which became payable from
                                                                          .,.-
F 26.8.1995. By order dated 27.8.2004 the Deputy Commissioner
  sanctioned the refund of Rs.2,50,394/-.
        A writ petition was filed against the said order dated
  27.8.2004 praying for grant of interest. The High Court directed
  grant of interest with effect from 24.7.1991 i.e. the first day on
G which the Assistant Collector rejected the prayer for refund. It is
  to be noted that Section 11 BB of the Act was introduced with
  effect from 26.5.1995. The High Court by the impugned order
  directed grant of interest as per the provisions of Section 11
  BB of the Act. Though in the original order paras 12 & 17 it was
H noted that the respondent had a right to get the amount of inter-
 :                                                                            505
     ----t           UNION OF INDIA & ANR. v. SHREEJI COLOUR
 !                    CHEM INDUSTRIES [DR. ARIJIT PASAYAT, J.]

             est within two months from 21.5.1996, and entitled to interest at A
             the rate of 9% p.a. for the period of three months commencing
             from 21.5.1996, it was subsequently corrected by order dated
             15.6.2006 substituting the date 24.7.1991 for 21.5.1996. In other
 ->          words according to the High Court the respondent was entitled
             to interest at the rate of 9% from 24.7.1991 irrespective of the B
             date when Section 11 BB was inserted. The High Court primarily
             relied on a decision of this Court in Sandvik Asia Ltd. v. Com-
             missioner of Income Tax I, Pune & Ors. [2006(2) SCC 508].
                   4. Learned counsel for the appellant submitted that the
             High Court has clearly lost sight of the fact that after introduc-      c
             tion of Section 11 BB the position relating to grant of interest
             has got crystalised and the grant of relief from the first date on
             which the application for refund was rejected cannot be sus-
             tained. It is submitted that Section 11 BB makes the position
             clear that only after three months from the date of application D
             interest becomes payable. Reference is also made to Section
             11 (d) of the Act. It is pointed out that the prayer of the respon-
             dent should not have been accepted because Rule 173L was
             not in existence and the prayer of the assessee was not in terms
             of Section 11 BB.                                                   E
                  5. It is submitted that in any event in case of statutory inter-
             est question of any equitable interest is not applicable.
                   6. Learned counsel for the respondent on the other hand
             submitted that equitable interest is also payable. With refer-          F
             ence to the proviso to Section 11(d)(1) and 11(d)(2) it is sub-
             mitted that the application which was filed in terms of Rule 173L
             has to be deemed to be an application under Section 11 (d). It
             is pointed out that the Deputy Commissioner in its order has
             referred to the earlier refund claims.
                                                                                     G
                  7. A three-Judge Bench of this Court in Modi Industries
             Ltd, Modinagar & Ors. v. Commissioner of Income Tax, Delhi
"'           & Ors. [1995(6) SCC 396] dealt with the position relating to
             grant of statutory interest. In paras 58 & 59 it was inter alia ob-
             served as follows:                                                  H
    506       SUPREME COURT REPORTS                   [2008] 13 S.C.R.


A         "58. The argument, which was upheld in some of the cases
          now under appeal, is that it will be inequitable if the
          assessee does not get interest on the amount of advance
          tax paid, when the amount paid in advance is refunded
          pursuant to an appellate order. This is not a question of
B         equity. There is no right to get interest on refund except as
          provided by the statute. The interest on excess amount of
          advance tax under Section 214 is not paid from the date
          of payment of the tax. Nor is it paid till the date of refund.
           It is paid only up to the date of the regular assessment. No
c         interest is at all paid on excess amount of tax collected by
          deduction at source. Before introduction of Section 244(1-
          A) the assessee was not entitled to get any interest from
           the date of payment of tax up to the date of the order as
           a result of which excess realisation of tax became
           refundable. Interest under Section 243 or Section 244
D
           was payable only when the refund was not made within
           the stipulated period up to the date of refund. But, if the
           assessment order was reduced in appeal, no interest was
           payable from the date of payment of tax pursuant to the
           assessment order to the date of the appellate order.
E
          59. Therefore, interpretation of Section 214 or any other
          section of the Act should not be made on the assumption
          that interest has to be paid whenever an amount which
          has been retained by the tax authority in exercise of statutory
F         power becomes refundable as a result of any subsequent
          proceeding."
          8. In Clariant International Ltd. v. Securities and Ex-
    change Board of India (2004(8) sec 524] it was observed as
    follows:
G
          "30. Interest can be awarded in terms of an agreement or
          statutory provisions. It can also be awarded by reason of
          usage or trade having the force of law or on equitable
          considerations. Interest cannot be awarded by way of
          damages except in cases where money due is wrongfully
H
'/'"




                UNION OF INDIA & ANR. v. SHREEJI COLOUR             507
                 CHEM INDUSTRIES [DR. ARIJIT PASAYAT, J.]

            withheld and there are equitable grounds therefor, for which   A
            a written demand is mandatory.
            31. In absence of any agreement or statutory provision or
            a mercantile usage, interest payable can be only at the
            market rate. Such interest is payable upon establishment
            of totality of circumstances justifying exercise of such B
            equitable jurisdiction. (See Municipal Corpn. of Delhi v..
            Sushi/a Devi l1999(4)SCC 3171, sec para 16.)"
            9. As was observed in para 30 referred to above, if the
       claim of interest is on equitable ground, a written demand therefor C
       is imperative.
             10. In the instant case admittedly no such written demand
       has been made. In terms of Section 11 BB (1 ), the respondent-
       assessee is entitled to interest from 12th April, 2004 to 26th Au-
       gust, 2004. The quantum shaU be worked out and the amount D
       shall be paid within a period of four weeks. The order of the
       High Court is accordingly modified and the appeal is allowed
       to the aforesaid extend. No costs.
       B.B.B.                          Appeal partly1allowed.              E
                       TUKARAM MARUTI CHAVAN
                                       II.