Claiming Refund of Interest u/s 11B of CEA, 1944 Time Limit?

By | February 6, 2015
REFUND of interest on late payment of duty/ tax was not contemplated under Section 11B of the Central Excise Act, 1944 till 11.05.2008. The Finance Act, 2008 amended Section 11B to provide for refund of “interest”, if any, paid on late payment of duty thereunder.
The refund under Section 11B is subject to two important restrictions: (a) passing the test of unjust enrichment; and (b) filing of claim for refund within prescribed time-period.
While Section 11B(1) of CEA, 1944 provides for filing of claims for refund of interest within one year from the relevant date, Section 11B(2) makes claims for refund of interest subject to the principle of unjust enrichment in specific terms.

However, the definition of ‘relevant date’ has not been amended to effectuate the time limitation provided for filing of claims for refund of interest within one year from the relevant date. In other words, the definition of ‘relevant date’ in Explanation-B to Section 11B does not provide for a situation where the claim is made in respect of refund of interest paid on duty. The only clause, which may seem applicable to refund claims for interest, is the residuary clause, which defines ‘relevant date’ to mean the date of payment of duty. However, one is to keep in mind that the payment of interest may follow payment of duty and there may be substantial difference of time between the date on which duty is paid and the date on which interest is paid. In such a case, to consider the date of payment of duty to be relevant date for the purposes of filing of refund claims of interest shall be unreasonable and imprudent.

Secondly, although provisions of Section 11B were amended to provide for refund of interest on duty, the provisions of Section 11BB remain unchanged to contemplate payment of interest in case of late sanctioning of refund of interest. Section 11BB provides for payment of interest in cases where a sanctioned refund of duty is not given effect to within three months from the date of receipt of application for refund. However, these provisions do not provide for payment of interest where sanctioned refund of interest is not given effect to within three months from the date of receipt of application for such refund. It is pertinent to note that the payment of interest in case of late sanctioning of refund of interest shall not be in the nature of interest on interest. The same is for the reason that the situation for refund of interest would arise only where such interest was not payable and thus, the refund of interest, as it is so called, is nothing but refund of an amount withheld by the department unjustifiably.

Thus, the provisions of Section 11B and Section 11BBof the CEA, 1944 need to be amended suitably to take care of the above aberration.

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