Refund of bank guarantee security in provisional assessment accrues on setting aside the demand; interest denied without statutory basis.

Refund of a bank guarantee furnished as security in provisional assessment accrues when the underlying demand is set aside, so limitation cannot be counted from the earlier date of encashment; the refund is therefore not time-barred and the security amount is refundable. Because the amount was a security deposit and not a duty payment, Section 11B was held inapplicable in this context, and the statutory basis for interest under Section 11BB was also absent; interest on the refunded amount was accordingly denied.

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Issues: (i) Whether the refund claim for the encashed bank guarantee furnished during provisional assessment was barred by limitation; (ii) Whether interest was admissible on the refunded amount.

Issue (i): Whether the refund claim for the encashed bank guarantee furnished during provisional assessment was barred by limitation.

Analysis: The bank guarantee was furnished as security in the course of provisional assessment under Rule 9B of the Central Excise Rules, 1944. Once the assessment order demanding differential duty was set aside, the right to seek refund arose only from the date of the Tribunal's order. In such a case, limitation could not be computed from the date on which the bank guarantee had earlier been encashed. The refund of security furnished in provisional assessment proceedings was also not governed by Section 11B of the Central Excise Act, 1944 in the manner applied by the lower authorities.

Conclusion: The refund claim was not time-barred and the assessee was entitled to refund of the bank guarantee amount.

Issue (ii): Whether interest was admissible on the refunded amount.

Analysis: The amount in question was only a security furnished by way of bank guarantee and not a duty deposit in advance. Since Section 11B of the Central Excise Act, 1944 was held inapplicable to such refund, the statutory basis for granting interest under Section 11BB of the Central Excise Act, 1944 was also absent.

Conclusion: Interest was not payable on the refunded amount.

Final Conclusion: The assessee succeeded in obtaining refund of the bank guarantee amount, but the claim for interest failed.

Ratio Decidendi: Where a bank guarantee is furnished as security in provisional assessment proceedings, the right to refund accrues when the assessment demand is set aside, and such refund is not barred by limitation merely because the guarantee had earlier been encashed; interest is not payable absent a statutory basis applicable to the security amount.

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