Pre-deposit interest entitlement: refundable appellate deposits carry interest from the date the appeal is allowed, not the refund application.

Amounts deposited as a pre-deposit for pursuing an appellate remedy do not assume the character of tax, and when the assessee succeeds, interest is payable from the date the appeal is allowed. The Delhi High Court held that the refundable deposit carries interest from the date of appellate relief, not merely from the refund application. It also rejected the challenge to the prospective operation of the amended Section 35FF of the Central Excise Act, 1944, preferring a construction that preserved the provision's validity. The writ petition succeeded, the refund order denying interest was quashed, and interest was directed to be computed and paid from the date the appeals were allowed.

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Issues: (i) Whether amounts deposited as pre-deposit during appellate proceedings and pursuant to court directions were entitled to interest from the date of deposit or from the date of disposal of the appeal. (ii) Whether the amended Section 35FF of the Central Excise Act, 1944 could be treated as invalid or arbitrary because of its prospective operation.

Issue (i): Whether amounts deposited as pre-deposit during appellate proceedings and pursuant to court directions were entitled to interest from the date of deposit or from the date of disposal of the appeal.

Analysis: The amount deposited as a condition for pursuing the appellate remedy was not in the nature of tax. Consistent judicial authority held that a pre-deposit is only a statutory or judicial condition for appeal and, when the assessee succeeds, the amount must carry interest from the date of the appellate relief rather than from the date of the refund application. The Court applied the settled view that such deposits do not lose their character as refundable appellate deposits and that interest follows from the date the appeal is allowed.

Conclusion: The petitioners were entitled to interest from the date on which the appeals were allowed.

Issue (ii): Whether the amended Section 35FF of the Central Excise Act, 1944 could be treated as invalid or arbitrary because of its prospective operation.

Analysis: The Court declined to accept the challenge. Once the provision was construed in a manner consistent with the entitlement to interest on pre-deposit amounts, the alleged arbitrariness or unconstitutionality did not survive. The Court preferred an interpretation that preserved the validity of the provision rather than one that would render it invalid.

Conclusion: The challenge to the amended Section 35FF on the ground of prospective operation was rejected.

Final Conclusion: The writ petition succeeded, the refund order denying interest was quashed, and the respondents were directed to compute and pay interest from the date the appeals were allowed.

Ratio Decidendi: An amount deposited as a pre-deposit for pursuing an appellate remedy does not assume the character of tax, and on successful disposal of the appeal the assessee is entitled to interest from the date of appellate relief.

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