Interest on delayed refund of predeposit becomes payable after appellate disposal when refund follows much later.

A predeposit made under section 35F is treated as a security deposit, not duty, and interest on its refund becomes payable if the amount is not returned within the prescribed period after the appeal is finally disposed of. The relevant starting point for computing delay is the date of the appellate order, as reflected in the departmental circular governing such refunds. Where the appeal has already been allowed and the refund is sanctioned only much later, the assessee is entitled to interest for the period beyond three months from the appellate order until actual refund. Denial of interest in such circumstances is unsustainable.

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Issues: Whether the assessee was entitled to interest on the delayed refund of the predeposit made under section 35F, after the appeal was finally allowed and the refund was sanctioned only much later.

Analysis: The refund of the predeposit had to follow final disposal of the dispute, and the departmental circular governing such refunds treated the date of the appellate order as the relevant starting point. The amount deposited under section 35F was a security deposit and not duty, and the settled position was that interest becomes payable when the refund is not made within the prescribed period after disposal of the appeal. As the appeal had been decided in favour of the assessee long before the actual refund, the delay entitled the assessee to interest for the intervening period after expiry of three months from the appellate order until the date of refund.

Conclusion: The assessee was entitled to interest on the delayed refund, and the denial of interest was unsustainable.

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