Hope Textiles Ltd. and Another vs Union of India (UOI)

N.K. Jain, J.—By this petition under Article 226 of the Constitution of India, the petitioners seek issuance of writ of mandamus, directing the respondent to pay to the petitioners interest on the delayed refund of excise duty @ 18% p.a. with quarterly rest.

Petitioner No. 1 M/s. Hope Textiles Ltd., is a Company carrying on the business of manufacture and sale of textile. Petitioner No. 2 is its Principal Officer. The respondent had levied Central Excise duty to the tune of Rs. 2,00,240.89 on the Drills manufactured by the petitioner No. 1 during the period between June, 1978 and November, 1979. The petitioner preferred claim before the Assistant Collector, Custom & Central Excise, Indore u/s 11B of the Central Excise & Salt Act, 1944 (for short ''the Act'') for refund of the aforesaid duty as according to the petitioners the duty was wrongly levied on it. The claim was rejected by the Assistant Collector vide his Order dated 30-9-80. Aggrieved by this Order the petitioners preferred an appeal to the Collector of Customs & Central Excise (Appeals). The said appeal (No. 469/80) was allowed by the Collector and it was held that the duty was levied illegally. Order for refund of the said amount was made by the Collector. Notwithstanding the Order for refund made by the Appellate authority, the respondent did not refund the amount until on 12-4-89 when the amount was finally refunded through a Cheque No. 604382 dated 12-4-89, drawn on Central Bank of India, Indore.

The petitioners claim interest @ 18% p.a. with quarterly rest on the said amount as according to them the amount was firstly levied wrongly and was then wrongfully withheld notwithstanding the petitioners claim and Order passed in appeal for refund of the said amount.

The respondent Union of India have filed return in oppugnation of the petition. The claim has been resisted mainly on the ground that the Act of 1944 does not contain any provision for grant of interest on amounts wrongfully withheld by the Department.

I have heard Shri S.C. Bagdiya, learned Sr. Counsel appearing with Shri V.K. Jain for the petitioners and Shri E.G. Neema, learned counsel for the respondent.

It is true that the Central Excise & Salt Act, 1944 did not at the relevant time contain any provision to provide for payment of interest on the amounts wrongfully levied or withheld by the Deptt.. It is, however, significant to note that now a new Section 11BB has been inserted in the Act by Section 75 of the Finance Act, 1995 w.e.f. 26-5-95. This newly inserted provision now provides for payment of interest at the rate not below 10% and not exceeding 13% p.a., on such duty (wrongly levied) from the date immediately after the expiry of 3 months from the date of receipt of application for refund till the date of refund of such duty. There is no doubt that this provision is not retrospective in nature. Nevertheless it is remedial provision which in the considered opinion of this Court merely recognises the well settled existing principle of equity that when a party has suffered any loss on account of wrongful withholding of any amount due to him by the other party the latter who has drawn undue advantage by withhelding the said amount should compensate the former.

In Elpro International Ltd. Vs. Joint Secretary, Govt. of India, Ministry of Finance and Others, , the Apex Court has held that :--

"Since in the instant case, excise duty was wrongly collected in 1966 and the amount was refunded in May, 1977, therefore, it will neither be harsh nor unjust if an amount of Rs. 50,000/- is paid by the Union to the respondent-company on account of such interest together with the amount of costs."

Following the ratio in Elpro (supra), Division Bench of Madras High Court in Union of India Vs. Coromandel Prodorite Ltd., , has held that absence of provision, cannot prevent a Court from exercising its jurisdiction under Article 226 of the Constitution of India so as to do justice between the parties and make an Order in equity. Similar view was taken by High Court of Calcutta, Bombay High Court and Delhi High Court (See Calcutta Paper Mills Manufacturing Co. Vs. Customs, Excise and Gold (Control) Appellate Tribunal and Others, ; Kirloskar Cummins Ltd. Vs. Union of India, .

Learned counsel for the respondent has, however, relied on the decision of Allahabad High Court in Prestige Engineering (India) Pvt. Ltd. Vs. Union of India (UOI), , Division Bench of that Court disallowed the claim for interest on the amount of refund of duty. It is, however, significant to note that in that decision also the Court has recognized power of the High Court to award interest, on equitable grounds if it is found that the petitioner was deprived of the use of his money for the period concerned. However, on the facts of that case the Court found that there is no equity in favour of the petitioner. In the instant case, however, not only the levy was wrongfully levied on the petitioners, but their claim for refund of that duty was wrongfully disallowed by the Assistant Commissioner. There has been indeed, culpable delay in making the refund on the part of the respondent inasmuch as the refund was not granted even after passing of the Order in appeal on 30-8-85 until on 12-4-89 when finally the refund was granted. Under the circumstances of the present case it appears just and proper to allow interest @ 12% p.a. from the date (30-9-80) when the claim for refund of the amount was wrongly rejected by the concerning authority till the date of actual payment.

Accordingly, the petition is allowed and it is directed that the respondent shall pay to the petitioners interest @ 12% p.a. with yearly rest on the said sum of Rs. 2,00,240.89 from 30-9-80 till 12-4-89. The respondent shall also pay Rs. 1,000/- to the petitioners towards costs of this petition. Security amount, if any, paid by the petitioners shall be refunded to them on verification.