Interest on pre-deposit refund under Section 129EE confirmed; department directed to pay assessee within two months

CESTAT Mumbai allowed the appeal, holding that the amount of Rs. 19,78,485/- deposited during investigation and treated as pre-deposit at the time of appeal before the Commissioner (Appeals) attracted mandatory interest under section 129EE of the Customs Act, 1962, as it stood prior to 06.08.2014. The Tribunal rejected the departmental and Commissioner (Appeals) view denying interest, terming it a violation of the assessee's statutory right, though it clarified that interest could not run from the date of deposit under the post-2014 regime. The impugned order was set aside and the department was directed to pay interest on the refunded pre-deposit within two months.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether refund of the amount deposited during investigation, having been treated as "pre-deposit" by the refund sanctioning authority, attracts mandatory interest under section 129EE of the Customs Act, 1962.

1.2 From which date interest on such refunded pre-deposit is payable, particularly whether from the date of deposit or only after expiry of three months from communication of the appellate order, in light of the amendment operative from 06.08.2014.

1.3 Whether refusal to grant interest, and relegation of the appellant to file appeal on a narrow technical ground, could defeat the statutory right to interest and the right of appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Entitlement to interest on refund of pre-deposit under section 129EE

Legal framework

2.1 The refund sanctioning authority expressly recorded that the sum of Rs. 19,78,485/-, deposited earlier in 2013-14, was "admissible as refund ... in terms of section 27 of the Customs Act, 1962" and treated it as a pre-deposit.

2.2 Section 129EE, as reproduced and applied by the Tribunal, provides that where an amount deposited by the appellant under the proviso to section 129E is required to be refunded pursuant to an order of the appellate authority, and such amount is not refunded within three months from the date of communication of such order, "there shall be paid to the appellant interest at the rate specified in section 27A..." from after expiry of the said three months till the date of refund.

Interpretation and reasoning

2.3 The Tribunal treated the amount as "pre-deposit" within the meaning of section 129E, in view of the explicit finding of the refund sanctioning authority that the amount paid in 2013-14 was taken as pre-deposit while sanctioning refund under section 27.

2.4 On that basis, the Tribunal held that the statutory provision of section 129EE governs interest on delayed refund of such pre-deposit, and the phrase "there shall be paid to the appellant interest..." makes payment of interest mandatory.

2.5 Since no interest was sanctioned on the refunded pre-deposit, the Tribunal held that the refund sanctioning authority acted in violation of the statutory mandate under section 129EE, thereby infringing the statutory right of the assessee to interest.

Conclusions

2.6 The Tribunal concluded that, the amount having been treated as pre-deposit, the appellant was statutorily entitled to interest on delayed refund of Rs. 19,78,485/- under section 129EE of the Customs Act, 1962.

Issue 2 - Relevant period for computation of interest and effect of amendment of 06.08.2014

Legal framework

2.7 The Tribunal applied section 129EE "as prevailing then" and noted that under that provision, interest is payable where the amount is not refunded within three months from the date of communication of the appellate order, till the date of refund.

2.8 It was noted that the appellant claimed interest from the date of deposit, referring to the legal position applicable after amendment brought into force on 06.08.2014.

Interpretation and reasoning

2.9 The Tribunal held that the wording of section 129EE in force during the relevant period did not support grant of interest from the date of deposit; under the unamended regime, interest starts only after expiry of three months from the communication of the appellate order, if refund is delayed beyond that period.

2.10 The Tribunal specifically observed that the claim for interest from the date of deposit "is not admissible since such provision is applicable only to the payments made post 06.08.2014 after amendment was brought into force."

2.11 Accordingly, for deposits made in 2013-14 and refunded pursuant to the appellate order, the applicable law was the pre-06.08.2014 version of section 129EE, under which interest accrues only on delayed refund beyond three months after communication of the appellate order.

Conclusions

2.12 The Tribunal held that interest is not payable from the date of deposit; it is payable only after expiry of three months from the date of communication of the appellate authority's order, calculated in accordance with section 129EE as it stood prior to 06.08.2014.

Issue 3 - Effect of technical objections and communications on right to interest and maintainability of appeal

Legal framework

2.13 The Tribunal considered the factual sequence: (a) refund of the pre-deposit was sanctioned without interest; (b) the appellant made several written representations claiming interest; (c) the Assistant Commissioner, by letter dated 09.07.2019, advised the appellant to file an appeal against the original refund order and returned the documents; (d) the Commissioner (Appeals) declined to treat that communication as an appealable order and dismissed the appeal as not maintainable.

2.14 Both sides relied on precedents on whether departmental letters/communications could be treated as "appealable orders", including conflicting Tribunal decisions, but the Tribunal did not rest its conclusion on detailed reconciliation of those authorities.

Interpretation and reasoning

2.15 The Tribunal focused on the substantive statutory right to interest under section 129EE and observed that non-grant of such mandatory interest, coupled with refusal to entertain the appellant's claim on "narrow technical ground", would result in denial of statutory dues.

2.16 The Tribunal reasoned that where the refund sanctioning authority had already recognised the deposit as pre-deposit, failure to grant statutorily mandated interest, and relegation of the assessee by mere communication without deciding the interest claim, could not be allowed to defeat the right of appeal and the right to interest.

2.17 The Tribunal thus exercised its appellate jurisdiction to correct the error, setting aside the order of the Commissioner (Appeals) which had dismissed the appeal as not maintainable.

Conclusions

2.18 The Tribunal held that technical objections regarding the form or character of the departmental communication could not deprive the appellant of the statutory interest due under section 129EE, and the Commissioner (Appeals)'s dismissal on maintainability grounds was unsustainable.

2.19 The order of the Commissioner (Appeals) was set aside, and the department was directed to pay interest on the refunded pre-deposit of Rs. 19,78,485/-, computed as per section 129EE as it stood prior to 06.08.2014, within two months of receipt of the Tribunal's order.

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