Refund interest follows when revenue retains a bank guarantee amount beyond the permitted period after assessment is set aside.

Interest is payable on a refund retained beyond the stipulated period where the amount was recovered by encashment of a bank guarantee and the final assessment was later set aside. The refund had to follow as a consequence of that order, and the Board circulars on refund of pre-deposit required return within three months. The Revenue's later proceedings and its insistence on a refund application did not change the substantive position, because the assessee's entitlement to refund had already crystallised. Denial of interest merely because the application was filed later was therefore unsustainable.

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Issues: Whether interest was payable on the amount refunded to the assessee after the final assessment was set aside and the amount had been retained by the Revenue beyond the stipulated period.

Analysis: The refund amount represented money recovered by encashment of a bank guarantee after provisional assessment and, once the final assessment was set aside, the amount ought to have been returned within three months as contemplated by the Board circulars governing refund of pre-deposit. The later proceedings initiated by the Revenue and the direction to file a refund application did not alter the position, because the substantive dispute had already been decided in favour of the assessee and the refund was required to follow as a consequence of that order. The denial of interest on the ground that the refund application was filed later was therefore unsustainable.

Conclusion: Interest was payable on the refunded amount for the period of delay, and the assessee's claim succeeded.

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