The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad has held that an amount deposited by an assessee during a Central Excise investigation, which subsequently takes the character of a “revenue deposit”, can carry interest from the date of deposit itself, rather than only after expiry of three months from the filing of a refund claim under Section 11BB of the Central Excise Act, 1944.
The principal question before the Tribunal was whether an amount deposited during investigation, but not ultimately appropriated towards any adjudicated Central Excise duty, should be treated as a revenue deposit and, consequently, whether interest on its refund could be granted from the date on which the money was deposited.
A related issue was whether the statutory mechanism under Sections 11B and 11BB of the Central Excise Act, 1944 governed the refund and interest. Section 11BB ordinarily provides interest on delayed refund of duty after the expiry of three months from the date of receipt of the refund application.
Buy Now: 70+ Judgements Indirect Tax – July 2026 | E-Magazine
The dispute became particularly significant because the Revenue accepted that the principal amount had ultimately been refunded but challenged the interest component and the date from which such interest was payable.
The case arose after Central Excise officers searched the assessee’s factory on March 12, 2015 in connection with an investigation into alleged fraudulent availment of CENVAT credit.
During the investigation, the assessee deposited a total of ₹8 crore in three instalments—₹5 crore on March 13, 2015, ₹1.5 crore on March 19, 2015 and another ₹1.5 crore on March 30, 2015.
Subsequently, the investigation was transferred to the DGCEI, which issued a demand-cum-show cause notice dated November 8, 2016 proposing recovery of ₹25.53 crore towards allegedly inadmissible CENVAT credit under the CENVAT Credit Rules, 2002, along with interest and penalty.
The assessee later sought refund of ₹8,21,30,257, comprising the ₹8 crore deposited during investigation and ₹21,30,257 that was already lying in its Personal Ledger Account (PLA) as on June 30, 2017.
The original refund claim was rejected by the adjudicating authority. The assessee challenged the rejection before the Commissioner (Appeals), who allowed the refund.
The Commissioner (Appeals), by order dated June 28, 2019, directed refund of the amount along with applicable interest from the date of deposit till the date of actual payment.
Pursuant to that order, the Assistant Commissioner sanctioned refund of ₹8,21,30,257 along with interest on August 28, 2019. The Revenue thereafter challenged the refund and interest orders before the CESTAT.
An important subsequent development was that the assessee opted for the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS) in relation to the November 8, 2016 show cause notice.
The declaration was accepted after payment of ₹12,76,50,330, and a discharge certificate in Form SVLDRS-4 was issued on May 15, 2020. Consequently, no demand remained recoverable from the assessee under the proceedings that had triggered the original investigation.
During the hearing, the Departmental Representative also fairly conceded that the refund of the principal amount was correctly made because there was no demand pending against the assessee. The Revenue’s challenge was therefore principally directed at the interest paid on the refunded amount.
The Judicial Member, P.K. Choudhary, held that the amount deposited during the investigation could not be equated with Central Excise duty where it had not been adjudicated or appropriated as duty, fine or penalty.
The Tribunal relied upon its earlier decision in Parle Agro Pvt. Ltd., where amounts deposited during investigation and not adjudged as duty, fine or penalty were treated as revenue deposits. The Tribunal noted that retention of an amount that was not legally adjudicated as duty, fine or penalty would lack authority of law.
The Judicial Member also noted that the Revenue itself had not challenged the refund on the ground of limitation under Section 11B, even though the ₹8 crore had been deposited in March 2015 while the refund application was filed only in February 2018. According to the order, this supported the conclusion that Section 11B was not applicable to the refund in question.
Why Section 11BB Was Held Inapplicable
The Judicial Member reasoned that Section 11BB specifically deals with interest on delayed refunds arising under Section 11B. Since the amount in the present case was treated as a revenue deposit rather than duty, Section 11B itself was held inapplicable.
Consequently, the Tribunal held that Section 11BB could not be invoked to restrict the interest merely to the period commencing three months after the filing of the refund application.
The Tribunal relied, among other authorities, on the Supreme Court’s decision in Sandvik Asia Ltd., as well as the Gujarat High Court’s decision in Hindustan Coca Cola Beverage Pvt. Ltd., to hold that compensation by way of interest can arise on general commercial principles where money belonging to an assessee has been wrongly withheld.
The Judicial Member further relied upon a line of CESTAT and High Court decisions granting interest on investigation deposits from the date of deposit, including decisions involving Kesar Enterprises, Duggar Fibre, Shahi Exports, Parsvnath Traders and Parle Agro.
Technical Member Dissents
However, Member (Technical) Sanjiv Srivastava disagreed with the proposed order.
He took the view that the refund and interest issue had to be examined within the statutory framework and that interest could not automatically be granted at 12% from the date of deposit merely by invoking general principles.
The Technical Member relied heavily on the Supreme Court’s subsequent decision in Willowood Chemicals Pvt. Ltd., which, according to him, clarified the scope of the earlier Sandvik Asia ruling. He noted that the Supreme Court had emphasised that interest on refunded amounts must be governed by statutory provisions where such provisions exist and that the rate of compensatory interest has to be determined having regard to the relevant facts and circumstances.
The Technical Member therefore proposed that the Revenue’s appeals be allowed to the extent of restricting interest on the admissible refund in accordance with Section 11BB of the Central Excise Act.
Difference of Opinion Referred to Third Member
Because of the disagreement between the two Members, a specific point of difference was framed and referred for resolution.
The question was essentially whether, in light of the Judicial Member’s opinion, the Revenue’s appeals should be dismissed, or whether, following the Technical Member’s view, the appeals should be allowed. The reference was made on November 14, 2024.
The matter was subsequently placed before Member (Judicial) P.A. Augustian as the Third Member.
Allahabad High Court’s Parle Agro Ruling Becomes Decisive
The Third Member noted that after the original difference of opinion, the Allahabad High Court had considered a similar question in Principal Commissioner, Central Goods & Service Tax v. M/s Parle Agro Private Limited.
The High Court had considered whether the Tribunal could grant interest on a refund from the date of deposit beyond Sections 11BB and 35FF of the Central Excise Act. The High Court answered the first substantial question against the Revenue and in favour of the assessee.
The High Court also declined to interfere with the Tribunal’s award of 12% interest, noting the prolonged retention of the assessee’s money. In that case, the amount had been forcibly extracted in 1994 and refunded only in 2018, after a period of 24 years.
The Third Member considered this jurisdictional High Court ruling directly relevant to the issue before him.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
Read More: Supreme Court Refers Validity of Arbitration Pre-Deposit Conditions to Larger Bench
