The Customs, Excise & Service Tax Appellate Tribunal has established a critical precedent that prolonged administrative delay in sanctioning rebate claims cannot be remedied by the statutory minimum interest rate of 6%. In a landmark ruling, the Tribunal held that when the Revenue withholds refundable amounts for over a decade without fault of the assessee, equitable principles and constitutional rights demand compensation at 12% per annum.
Background & Facts
The Dispute
The appellant, M/s Hindustan Mint & Agro Products Pvt. Ltd., was engaged in the export of mentha-based products and claimed rebate of excise duty paid on inputs under the export incentive scheme. It filed 67 rebate claims for the financial years 2008-09 and 2009-10, aggregating Rs. 2.40 crores. The Department rejected 34 claims outright, alleging inadmissible Cenvat credit due to non-receipt of goods from Jammu and Kashmir-based suppliers. The remaining 33 claims, worth Rs. 1.29 crores, were held pending while the Department initiated investigations into alleged invoice fraud.
Procedural History
- 2010: Show Cause Notices issued for denial of Cenvat credit on invoices from J&K suppliers
- 2011: Revisionary Authority set aside an earlier appellate order allowing rebate claims and remanded for re-adjudication pending outcome of Cenvat proceedings
- 2011 - 2021: Four SCNs remained pending for over 12 years without adjudication
- 2021: Punjab and Haryana High Court quashed all pending SCNs due to inordinate delay
- 2021: 66 out of 67 rebate claims (Rs. 2.38 crores) were finally sanctioned
- 2022: Commissioner (Appeals) granted interest at 6% under Section 11BB of the Central Excise Act, 1944
- 2026: Appeal filed before CESTAT challenging the 6% interest rate as inadequate
Relief Sought
The appellant sought interest at 12% per annum on the sanctioned rebate amount from the date of deposit of the underlying duty until the date of actual refund, arguing that the 12-year delay caused severe financial hardship and that the statutory 6% rate was manifestly insufficient.
The Legal Issue
The central question was whether Section 11BB of the Central Excise Act, 1944, which prescribes a 6% interest rate for delayed refunds, is the exclusive remedy for interest on rebate claims delayed for over a decade, or whether equitable principles and constitutional rights under Article 300A permit a higher rate of interest to compensate for unjust enrichment by the Revenue.
Arguments Presented
For the Appellant
The appellant’s counsel argued that Section 11BB applies only to routine delays within three months of application, not to extraordinary delays spanning over a decade. Reliance was placed on Commissioner of Central Excise, Hyderabad v. ITC Ltd. and Sandvik Asia Ltd. v. Commissioner of Income Tax, where the Supreme Court upheld 12% interest for prolonged delays. It was contended that the Revenue’s retention of funds for 12 years constituted unjust enrichment, and that denying adequate interest violated the appellant’s property rights under Article 300A. The Tribunal’s own precedent in M/s Parle Agro Pvt. Ltd. and High Court rulings from Kerala and Allahabad were cited to support the 12% rate.
For the Respondent
The Department contended that Section 11BB is a complete code for interest on delayed refunds and that the statutory rate of 6% is the only permissible rate, regardless of delay duration. It argued that no provision in the Act authorizes higher interest for administrative delays, and that the appellant’s reliance on judgments concerning drawback or income tax refunds was inapplicable to excise rebate claims.
The Court's Analysis
The Tribunal undertook a comprehensive review of statutory provisions, constitutional principles, and judicial precedents. It first clarified that Section 11BB was never intended to cap interest in cases of gross administrative inaction. The Court observed that the Department’s failure to adjudicate SCNs for 12 years, despite the High Court having already quashed them, amounted to a systemic failure, not a mere procedural delay.
"The Department has earned interest during the period the currency was retained by it, and it cannot deny payment of interest merely for the reason that there is no express statutory provision."
The Tribunal emphasized that Article 300A protects the right to property, including the right to interest accruing on funds lawfully due. The Revenue’s retention of the appellant’s money for over a decade without any legal justification constituted a deprivation of property without authority of law. The Court distinguished Section 11BB as a minimum floor rate applicable to timely claims, not a ceiling for cases of egregious delay.
The Tribunal relied on Sandvik Asia Ltd., where the Supreme Court condemned the Department’s discriminatory practice of charging interest on tax dues while denying fair interest on refunds. It noted that the Department itself, through Circulars dated 2002 and 2004, acknowledged its liability to pay interest on delayed refunds. The Tribunal further held that the rate of 12% per annum, consistently upheld by the Supreme Court and multiple High Courts, strikes a fair balance between compensating the assessee and not imposing punitive rates on the State.
The Verdict
The appellant won. The Tribunal held that interest at 12% per annum is mandatory on rebate claims delayed for over 12 years, regardless of Section 11BB’s 6% rate. The interest must be calculated from the date of deposit of the underlying duty until the date of actual refund. The impugned order was set aside and the Department was directed to pay the full 12% interest with consequential relief.
What This Means For Similar Cases
Interest Cannot Be Limited to Statutory Minimum in Gross Delay
- Practitioners must now argue that Section 11BB is not an exclusive ceiling but a floor for routine delays
- Any delay exceeding 5 - 7 years without fault of the assessee triggers equitable entitlement to 12% interest
- The burden shifts to the Revenue to justify why a higher rate is not warranted
Constitutional Right to Compensation Trumps Statutory Silence
- Even where no specific provision prescribes interest, Article 300A mandates compensation for prolonged deprivation of property
- Courts will look to analogous provisions (e.g., Section 11DD, Section 35FF) and judicial trends to determine fair compensation
- Circulars issued by CBIC acknowledging liability to pay interest are now binding on administrative conduct
12% Is the De Facto Standard for Long-Delayed Refunds
- The Tribunal has effectively established 12% as the benchmark for delays beyond a decade
- Practitioners should cite Sandvik Asia Ltd., ITC Ltd., and Sony Pictures Networks as controlling authority
- Claims for interest should be framed not merely as statutory entitlements but as constitutional remedies for unjust enrichment
