The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has held that an assessee is entitled to interest at the rate of 12% per annum on amounts deposited during investigation, from the date of deposit till the date of refund, treating such deposits effectively as pre-deposits. However, the Tribunal clarified that no “interest on interest” is admissible under the law.
The bench of Somesh Arora (Judicial Member) has observed that the appellant is entitled to interest at 12% per annum on the entire deposited amount of ₹15 lakh, calculated from the date of deposit during investigation till the date of refund. However, it directed that the interest already paid (₹4,794) be adjusted against the total liability.
The case arose from an appeal filed by Spring Merchandiser Pvt. Ltd. challenging the order of the Commissioner (Appeals), who had restricted interest only to ₹1.18 lakh—treated as statutory pre-deposit under Section 35F of the Central Excise Act—out of the total ₹15 lakh deposited during investigation. Consequently, the interest granted was merely ₹4,794, without extending the benefit to the entire refunded amount.
The appellant contended that the entire amount deposited during investigation should be treated as a pre-deposit, and therefore, interest should be granted on the full sum from the date of deposit. Reliance was placed on various judicial precedents where courts and tribunals have awarded interest on such deposits as compensation for deprivation of funds.
On the other hand, the Department argued that interest must be governed strictly by Section 11BB of the Central Excise Act, which provides for interest only after three months from the date of filing of refund application, and at the rate notified (6% per annum). It also opposed the claim for “interest on interest,” citing Supreme Court rulings.
After considering the rival submissions, the Tribunal observed that the issue was no longer res integra and had been settled in earlier decisions, including in KLJ Plasticizers Ltd. and Patel Labour Contractors Pvt. Ltd., where it was consistently held that amounts deposited during investigation assume the character of pre-deposit. Consequently, when such amounts are refunded following success in appeal, the assessee is entitled to interest from the date of deposit.
The Tribunal emphasized that judicial precedents, including those of the Supreme Court and High Courts, have evolved a consistent principle that retention of money by the State without justification warrants compensation by way of interest. Even in the absence of explicit statutory provision, such interest has been granted to ensure fairness and equity.
The Tribunal rejected the claim for interest on delayed payment of interest, reiterating that such a claim is not sustainable in view of the Supreme Court’s ruling in Gujarat Fluoro Chemicals, which limits entitlement strictly to statutory interest unless otherwise specifically provided.
Accordingly, the appeal was partly allowed, with directions to the adjudicating authority to recompute and grant interest at 12% per annum on the refunded amount, while denying any additional claim for interest on interest.
Case Details
Case Title: Spring Merchandiser Pvt Ltd Versus Commissioner Of Cgst & Central Excise – Daman
Citation: JURISHOUR-1049-CES-2026(AHM)
Case No.: Excise Appeal No. 11405 of 2025-SM
Date: 24.04.2026
Counsel For Appellant: Samyak Jain, Advocate
Counsel For Respondent: Sunita Menon, Superintendent(AR)
