Gujarat High Court
Dhrangadhra Chemical Works Ltd vs The Commissioner Of Customs on 3 September, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO. 181 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
==========================================================
Approved for Reporting Yes No
✔
==========================================================
DHRANGADHRA CHEMICAL WORKS LTD.
Versus
THE COMMISSIONER OF CUSTOMS
==========================================================
Appearance:
MR. SUDHANSHU BISSA, ADV. FOR MR PARESH M DAVE(260) for the
Appellant(s) No. 1
DEEPAK N KHANCHANDANI(7781) for the Opponent(s) No. 1
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
Date : 03/09/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr.Sudhanshu Bissa for learned advocate Mr. Paresh Dave for the appellant and learned advocate Mr. Deepak Khanchandani for the respondent.
2. This appeal is filed under Section 130 of the Customs Act, 1962 (for short 'the Act') arising Page 1 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined out of Final Order dated 23.11.2007 passed by the Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad (for short "the CESTAT')in Appeal No. C/6/2007.
3. This Court by order dated 25.1.2008 admitted the appeal in terms of the following question:
"Whether the Revenue was liable to pay interest on delayed refund of pre-deposit of penalty amount when such pre-deposit was not returned/ refunded to the appellant within three months after the appeal was allowed in favour of the appellant?"
4. Brief facts of the case are as under:-
4.1 The appellant company is, inter alia,engaged in the business of manufacture of products like Soda Ash. The appellant imported certain machineries which was subjected to some dispute on valuation. The Commissioner of Customs, Kandla adjudicated the case in 1991 confirming Page 2 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined differential duty of Rs.1,46,68,637.76 and imposed penalty of Rs.50 lakh.
4.2 Being aggrieved, the appellant filed an Appeal and Stay Application before the CESTAT.
While deciding the Stay Application, the CESTAT ordered the appellant to pre-deposit a sum of Rs. 10 lakh vide order dated 19.2.1992. The amount was deposited with Commissioner of Customs, Kandla. The CESTAT finally decided the Appeal vide final order dated 13.5.1994 and the penalty was set-aside. The appellant filed claim for return of the pre-deposit in January, 1997 after various litigation 4.3 The respondent refunded the amount of pre- deposit on 9.7.2002 without payment of interest. The appellant, therefore, approached adjudicating authority and claimed interest on pre-deposit of penalty which was belatedly returned, after 3 months from the date of filing of the application in January, 1997 till the date of payment. Page 3 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025
NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined 4.4 The adjudicating authority rejected the claim of interest made by the appellant. The appellate preferred an appeal before Commissioner (Appeals) who by order dated 30.12.2005 held that under the provisions of the Customs Act, the appellant is not entitled to get the refund on delayed payment of pre-deposit.
4.5 Being aggrieved, the appellant preferred an appeal before the CESTAT. The CESTAT, after considering the submissions made by the Appellant vide order dated 23.11.2007, held as under:
"6.1 I have carefully considered the submissions from both sides. The duty requires being collected strictly as provided by law. In practice, there could be cases of excess collection or short collection due to various reasons. The provisions for demand of duty short levied or not levied or short paid etc. from the assessee by the department and the provisions for claim for refund by the assessee from the department when there are excess payment or payment made when not required are reciprocal provisions.
6.2 The interest, as rightly pointed out Page 4 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined by the learned advocate, is somewhat compensatory in nature. However, the interest becomes demandable by the department and payable by the department in terms of specific provisions of statute.
6.3 The provisions relating to confiscation and penalty are penal in nature. If a person, on whom a penalty is imposed, does not pay immediately and pays, say after a few years, as of now, the department has no powers to collect of interest on such delayed payment of penalty. Reciprocally, penalty imposed on a person was paid either fully or partly by that person and the same was set aside or reduced ultimately resulting in refund of amount of penalty he merely gets the amount of penalty without interest. As rightly held by the Commissioner (Appeals), there is no provision for grant of penalty under the Customs act. There is also no provision for recovery of interest on delayed payment of penalty.
7.1 Coming to the decision of Larger Bench, in case of Mulji Narshi Shah cited supra, the same has allowed the interest on the delayed payment deposit of penalty at the rate prescribed under Section 27A.
7.2 The subsequent Larger Bench Decision in the case of Advance Mechanical Works cited supra has taken a different view. The relevant portion of the decision of the Larger Bench is reproduced below:
4. The referral order is Page 5 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined concerned with the same issue, ie., whether interest is payable on the redemption fine while refunding it. The issue is fairly covered by the decision of the Apex Court in Orient Enterprises supra. The circumstances under which interest is payable on the delayed refunds are enumerated in the Central Excise Act as well as Customs Act presently.
The decision in Sheela Foam Pvt. Ltd. pertains to deposit made towards duty during the course of investigation and is not in regard to fine paid in pursuance of an adjudication order. The Apex Court clearly held that even under Article 226 of the Constitution, a claim for interest on redemption charges paid in pursuance of an adjudication order which was set aside later, can't be maintained. The present appellant's claim for interest on the redemption fine therefore cannot be upheld.
5. We observe that there is no conflict between the decision in Sheela Foam and Orient Enterprises. The latter was dealing with the interest on redemption fine to be refunded while the former was concerned about interest on deposit of duty. We conclude that no interest is payable on redemption fine and penalty Page 6 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined while refunding the same in pursuance of an order of a higher judicial forum as observed by the Supreme Court in Orient Enterprises' case. The case of interest on consequential refund of duty is covered by the decision in Sheela Foam case. There is no conflict between these decisions. We hold accordingly." 7.3 The Section 27A specifically refers to "interest payable on duty". There is no provision of law which provide for payment of interest either by the department in the event of refund or by the parties on whom penalty is imposed. 7.4 Another submission by the learned SDR is that the draft circular which forms part of the decision of the Hon'ble Supreme Court, in the case of ITC Ltd. does not anywhere say that interest is payable on return of all pre-deposits on the orders favorable to the parties are passed. It only envisages that such determination has to be done by the Tribunal or Court as the case may be. If interest is held payable, then it envisages that delay in payment beyond 3 months will attract interest liability. I find that this interpretation is reasonable and I agree with the same.
8. Therefore, I do not find any infirmity with the order of the Commissioner (Appeals) which has followed the decision of the Larger Bench of the Tribunal in the case of Page 7 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined Advance Mechanical Works cited supra." 4.6 The appellant has, therefore, preferred this appeal, which is admitted for consideration of the above substantial question of law.
5. Learned advocate Mr. Sudhanshu Bissa for learned advocate Mr. Paresh Dave for the appellant submitted that the respondent authorities and the CESTAT ought to have granted interest on the late payment of return of the pre-deposit, which was made by the appellant pursuant to the stay order granted by the CESTAT. It was submitted that the appellant never paid the penalty amount, which is the basis for denial of interest by the CESTAT as well as the authorities below.
5.1. In support of his submissions, reliance was placed on the decision of Hon'ble Supreme Court in case of Commissioner of Central Excise, Hyderabad v. I.T.C Ltd, reported in 2005 (179) Page 8 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined E.L.T 15 (S.C), which is followed in various following decisions:
i. Union of India v. TATA SSL Ltd, reported in 2007 (218) E.L.T 493 (S.C);
ii. Bharat Heavy Electricals Ltd. v.
Commissioner, reported in 2008 (224) ELT A133 (S.C);
iii) Bharat Heavy Electricals Ltd. v.
Commissioner of Central Excise, Meerut, reported in 2002 (139) E.L.T 591 (Tri.-Del);
iv) Comm. Of Central Excise & Customs, Surat-II versus Sachin Textiles (P) Ltd, rendered in Central Excise & Customs Gold Control Application No.1 of 2011 of this Court;
v) Abdulla Gani v. Union of India, reported in 2013(298) E.L.T 221 (Bom.);
vi) Commissioner of Customs, Cochin v. Shree Simandar Enterprises, reported in 2012 (283) E.L.T 369 (Ker.); and
vii) Suvidhe v. Union of India, reported in Page 9 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined 1996 (82) E.L.T 177 (Bom.)
6. On the other hand, learned advocate Mr. Deepak Khanchandani for the respondent submitted that the appellant has made the pre-deposit pursuant to the stay order granted by the CESTAT and, therefore, it would amount to payment towards the penalty and, therefore, as per the provisions of Section 27A of the Act, the CESTAT has rightly not awarded to the appellant interest on late payment of refund of the pre-deposit amount made by the appellant before the CESTAT. 6.1 It was further submitted that the CESTAT has rightly come to the conclusion that the amount paid towards penalty by the appellant may be in form of pre-deposit, cannot be considered for awarding interest on late refund after such penalty was set-aside by the CESTAT in the year 1995.
Page 10 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025
NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined
7. Having heard the learned advocates for the respective parties and considering the facts of the case, it is not in dispute that the appellant has made a pre-deposit of Rs.10 Lakh pursuant to the stay order granted by the CESTAT, however,it does not loses the character of pre-deposit and it cannot be considered as a payment towards the penalty for discharge of the outstanding liability of penalty as the appellant was contesting the levy of penalty by preferring an appeal before the CESTAT.
8. This Court in case of Commissioner of Central Excise & Customs, Surat-II v. Sachin Textiles (P) Ltd (Supra) after considering the decision of Commissioner of Central Excise, Hyderabad v. I.T.C. Ltd. (Supra) has held as under:
"5. As can be seen from the impugned order of the Tribunal, the Tribunal has allowed the application for interest on late refund of the amount paid by way of pre-deposit under section 11BB of the Act on the ground that pre-deposit is in the nature of duty. This finding of the Tribunal, is clearly contrary to the Page 11 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined settled position of law that amount paid by way of pre-deposit is not in the nature of duty. Section 11BB of the Act which makes provision for "Interest on delayed refunds" lays down that if any duty ordered to be refunded under sub- section (2) of section 11B to an applicant is not refunded within a period of three months from the date of the application, the applicant shall be paid interest as provided thereunder 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. Thus, section 11BB applies in case where refund is ordered to be made under section 11B and not otherwise. Section 11B makes provision for "Claim for refund of duty". Thus, section 11B of the Act would be applicable in respect of claims of refund of duty of excise. Amount paid by way of pre-deposit not being in the nature of duty, section 11B would not be applicable to the same, and consequently the provisions of section 11BB would also not be attracted. The order of the Tribunal, therefore, prima facie does not appear to be in consonance with the statutory provisions. However, though the respondent may not be entitled to interest on delayed refund under section 11BB of the Act, it is not as if it is not entitled to any interest at all on late refund of the amount of pre- deposit. In the case of Commissioner of Central Excise, Hyderabad Vs. I.T.C. Limited, 2005 (179) E.L.T. 15 (SC), the controversy in issue before the Supreme Court was as to whether the pre-deposit Page 12 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined made as a pre-condition for the hearing of the appeal under the Central Excise Act, 1944 was, on the assessee being ultimately successful, refundable to the assessee with interest. On behalf of the revenue it was stated before the Court that the Central Board of Excise and Customs proposes to issue a circular in connection with the payment of interest on all such pre-deposits, a draft copy whereof was placed before the Court. Having regard to the contents of the draft circular, the Court directed compliance with the final order impugned before it and payment of interest in terms of the draft circular. In the said case, the Court directed payment of interest @ 12%.
6. Adverting to the facts of the present case, considering the period which has elapsed since the date of order of the Tribunal, though this Court does not agree with the reasoning adopted by the Tribunal as noted hereinabove, the ultimate relief granted by the Tribunal being in consonance with the decision of the Supreme Court in the case of Commissioner of Central Excise, Hyderabad Vs. I.T.C. Limited (supra), no case is made out so as to warrant any interference."
9. The Hon'ble Apex Court in case of Central Excise, Hyderabad v. I.T.C. Ltd. (Supra)has held as under:
"The issue in this appeal and in several Page 13 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined other appeals is whether the pre-deposit made as a pre-condition for the hearing of the appeal under the Central Excise Act, 1985 was, on the assessee being ultimately successful, refundable to the assessee with interest. The learned Solicitor General has taken instructions and has stated before this Court that the Central Board of Excise & Customs proposes to issue a circular in connection with the payment of interest on all such pre-deposits. A draft copy of the proposed circular has been handed over to this Court. Having regard to the contents of the draft circular we direct compliance with the final order impugned before us and payment of interest in terms of the draft circular. The draft circular shall be appended to and the contents form part of this order. The appeal is disposed of. In view of this order any judgment of any High Court holding to the contrary will no longer be good law."
10. It appears that the CESTAT has lost sight of the distinction between the concept of "pre- deposit" and "payments made towards the outstanding demand of either duty, interest or penalty". The CESTAT would have been justified if the appellant had paid the penalty and thereafter by the order of the CESTAT it was set-aside and there is a delay in refund of the penalty, the Page 14 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined refund amount which may have come into existence after setting aside of such penalty, then question of payment of refund would not arise, as Section 27A of the Customs Act, 1962, clearly provides for interest on the refund of the duty amount, which reads as under:
"Section 27A. 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 percent and not exceeding thirty percent 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 Page 15 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined 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 under sub-section (2) of section 27, the order passed by the Commissioner (Appeals), Appellate Tribunal, National Tax Tribunal or Tribunalas 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."
11. On perusal of the above provision of the Act, Page 16 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined it is clear that if any duty ordered to be refunded under Section 27(2) of the Act, is not refunded within three months from the date of receipt of the application under sub-section (1) of that Section, the interest is required to be paid. However, in the facts of the case, as held by Hon'ble Apex Court, when a pre-deposit is made, pursuant to the order of the CESTAT, that would not partake the character of either payment of duty or penalty. Therefore, as per the decision of this Court, provisions of Section 27A would not be applicable, however, the appellant would be entitled to refund of amount of pre- deposit as held by the Hon'ble Apex Court in case of Central Excise, Hyderabad v. I.T.C. Ltd. (Supra).
12. In view of the above dictum of law and considering the facts that if there is no dispute about the facts as recorded by the CESTAT to the effect that appellant has made a claim of Page 17 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025 NEUTRAL CITATION C/TAXAP/181/2008 JUDGMENT DATED: 03/09/2025 undefined interest on amount of pre-deposit made by it pursuant to the order of CESTAT, the appellant is entitled to the interest on the amount of refund on the expiry of three months from the date of application till the date of payment. Therefore, we answer the question in favour of the Assessee appellant and against the Revenue.
The appeal is, accordingly, allowed. No order as to costs.
(BHARGAV D. KARIA, J) (PRANAV TRIVEDI,J) SAJ GEORGE Page 18 of 18 Uploaded by SAJ GEORGE(HC01069) on Wed Sep 17 2025 Downloaded on : Sat Sep 20 00:29:11 IST 2025