Case Note & Summary
The case involves two writ petitions filed by Ramkaran Karwa and his son Samir Karwa against the Union of India and other GST authorities. The petitioners sought quashing of an Order-in-Original dated 5th July 2024, which granted interest at 6% per annum on the refund of cash seized during an investigation, instead of the claimed 18% per annum. The background is that on 29th August 2011, an investigation was initiated against Perfect Containers Pvt. Ltd., and the residence of Ramkaran Karwa was searched, leading to seizure of Rs.2,06,33,000/- from his premises and Rs.15,94,000/- from his son's residence, totaling Rs.2,22,27,008/-. The seized cash was deposited in a fixed deposit with Punjab & Sind Bank. On 19th May 2016, an Order-in-Original was passed against Perfect Containers Pvt. Ltd. and the petitioners, holding the cash liable for confiscation and imposing a penalty on Ramkaran Karwa. However, on 31st March 2017, the first appellate authority set aside the confiscation and penalty. The department's appeal to the Tribunal was dismissed on 18th October 2023, and the order attained finality. Despite the favorable orders and no stay, the respondents delayed the refund. The petitioners made several requests for refund with interest at 18% per annum. On 5th July 2024, the respondents passed the impugned order granting refund of the seized cash with interest at 6% per annum from the date of fixed deposit, relying on Circular No.984/08/2014 dated 16th September 2014. The petitioners challenged this rate. The court analyzed that the Circular applies only to pre-deposits under Section 35FF of the Central Excise Act or Section 129EE of the Customs Act, and the respondents admitted that this was not a case of pre-deposit. The court held that the respondents were not justified in applying the Circular and that the petitioners are entitled to interest at the rate actually earned on the fixed deposit or 18% per annum, whichever is higher, from the date of seizure until refund. The court allowed the petitions, quashed the impugned order to the extent of the interest rate, and directed the respondents to recalculate and pay interest accordingly within four weeks.
Headnote
A) Constitutional Law - Article 226 - Refund of Seized Cash - Interest Rate - Petitioner sought quashing of Order-in-Original granting interest at 6% per annum on refund of cash seized during investigation, claiming entitlement to 18% per annum. Court held that Circular No.984/08/2014, which prescribes 6% interest, applies only to pre-deposits under Section 35FF of Central Excise Act or Section 129EE of Customs Act, and not to refund of cash seized during investigation. Respondents admitted that the case does not involve pre-deposit under Section 35FF. Therefore, the Circular was erroneously applied. (Paras 14-16) B) Constitutional Law - Article 226 - Refund of Seized Cash - Interest Rate - Unjust Enrichment - The seized cash was deposited in a fixed deposit by Respondents and earned interest at a rate higher than 6%. Court observed that granting only 6% interest would result in unjust enrichment of the department. Petitioner is entitled to the actual interest earned on the fixed deposit or 18% per annum, whichever is higher, from the date of seizure till the date of refund. (Paras 14, 17-18) C) Central Excise Act, 1944 - Section 35FF - Pre-deposit Interest - Circular No.984/08/2014 - The Circular dated 16th September 2014, relied upon by Respondents, is applicable only to amounts deposited as pre-deposit under Section 35FF of the Central Excise Act or Section 129EE of the Customs Act. Since the cash was seized during investigation and not deposited as pre-deposit, the Circular does not apply. (Paras 15-16)
Issue of Consideration
Whether the Respondents were justified in granting interest at 6% per annum on the refund of cash seized during investigation, when the seized cash was deposited in a fixed deposit earning more than 6% interest, and whether the Circular No.984/08/2014 applies to such refund.
Final Decision
The court allowed the writ petitions, quashed the impugned Order-in-Original dated 5th July 2024 to the extent it granted interest at 6% per annum, and directed the respondents to recalculate interest at the rate actually earned on the fixed deposit or 18% per annum, whichever is higher, from the date of seizure (29th August 2011) till the date of refund, and pay the differential amount within four weeks.
Law Points
- Interest on refund of seized cash
- Applicability of Circular No.984/08/2014
- Unjust enrichment
- Commercial rate of interest
- Section 35FF Central Excise Act
- Section 129EE Customs Act
