Interest on wrongfully retained tax deposits follows from coercive collection and delayed refund after exemption recognition.

Amounts collected by the Department under coercion, before adjudication and later refunded after the demand was set aside, were treated as deposits wrongfully retained rather than duty paid voluntarily. Once the exemption notification was recognised, the sums were found not due in law, and the unlawful retention for a long period justified interest from the respective dates of deposit. The applicable rate was the rate notified for delayed refund claims. The appellant was therefore entitled to interest on the refunded amounts, and the miscellaneous application was allowed to that extent.

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Issues: Whether the appellant was entitled to interest on amounts collected by the Department under coercion and later refunded after the underlying demand was set aside.

Analysis: The amounts were collected in advance of the adjudication and were held to be not due under law once the exemption benefit was recognised. In substance, the sums retained by the Department were deposits withheld because of wrongful denial of the exemption notification, not duty paid voluntarily. Since a major portion had remained with the Department for a long period, the retention was unlawful and interest was payable from the respective dates of deposit. The rate was to be that applicable to delayed refund claims as notified by the Government.

Conclusion: The appellant was entitled to interest on the refunded amounts, and the miscellaneous application was allowed to that extent.

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