The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that an assessee is entitled to interest at the rate of 12% per annum on an amount deposited during a Customs investigation, calculated from the date of the deposit until the date on which the amount is refunded.
The bench of Somesh Arora (Judicial Member) observed that the right to interest in such cases is based on the principle of compensation for the government’s use and retention of the assessee’s money. It clarified that the absence of an express statutory provision would not justify denying interest where judicial precedents have consistently recognised such compensation.
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The dispute arose from an investigation concerning the alleged diversion of fancy scarves manufactured from polyester knitted fabrics and fancy dupattas made from 100% polyester filament yarn from the appellant’s unit in the Kandla Special Economic Zone.
During the investigation, the appellant deposited ₹20 lakh on February 12, 2002. The proceedings subsequently travelled through different stages of adjudication and appeal.
In the second round of litigation, CESTAT Ahmedabad, through a final order dated February 23, 2023, set aside the adjudication order passed by the Commissioner of Customs, Kandla. The Tribunal allowed the appellant’s appeal with consequential relief.
Following that decision, the appellant filed a refund application seeking the return of the ₹20 lakh deposited during the investigation. The appellant also claimed interest on the amount for the period during which it remained with the Customs Department.
The Customs department sanctioned the refund of ₹20 lakh but rejected the claim for interest. The Department took the position that interest was not payable under Section 27A of the Customs Act, 1962, because the refund had been sanctioned within three months from the date on which the refund application was filed.
Section 27A provides for interest where a refund ordered under Section 27 is not made within three months from the date of receipt of the refund application.
The appellant challenged the rejection, contending that the amount in question was not a regular Customs duty payment but a deposit made during an investigation. Therefore, interest was required to be calculated from the date of the original deposit and not merely after the expiry of three months from the refund application.
The appellant relied on several decisions of CESTAT Ahmedabad in which interest at 12% per annum had been ordered from the date of deposit. These included the Tribunal’s rulings in KLJ Plasticizers Ltd., Patel Labour Contractors Pvt. Ltd. and Spring Merchandiser Pvt. Ltd.
The Department’s authorised representative, on the other hand, reiterated the findings recorded in the order rejecting the interest claim.
CESTAT held that the issue concerning payment of interest on amounts voluntarily deposited during an investigation was no longer res integra, meaning that it was no longer an undecided question of law.
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