Refund of departmental deposits is not barred by duty limitation when the underlying demand is set aside.

Amounts deposited under departmental direction during investigation, and not by way of voluntary duty payment, do not acquire the character of duty merely because refund is later sought. Where the underlying demand is set aside, such deposits are refundable and the limitation under Section 11B of the Central Excise Act, 1944 does not apply. The Tribunal relied on the settled position that compelled deposits made in a contested proceeding are outside the refund bar for duty, and the Board circular treating pre-deposit as distinct from duty supported refund in favour of the assessee.

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Issues: Whether refund of amounts deposited under departmental direction is barred by limitation under Section 11B of the Central Excise Act, 1944.

Analysis: The amounts had been deposited at the instance of departmental officers during investigation into alleged shortages, and the demand based on those allegations was ultimately set aside. Such deposits were therefore not voluntary payments of duty but were made under compulsion and in the course of a contested dispute. Amounts so deposited did not acquire the character of duty merely because they were later sought to be refunded, and the limitation applicable to refund of duty under Section 11B did not govern such deposits. The Tribunal also relied on the settled position that amounts deposited during investigation or pursuant to departmental direction, when the underlying demand fails, are to be refunded without applying the bar of limitation. The Board circular clarifying that pre-deposit is not payment of duty and that refund should follow when the matter is decided in favour of the appellant supported this view.

Conclusion: The refund claim was not barred by limitation and was entitled to be allowed in favour of the assessee.

Ratio Decidendi: Amounts deposited under departmental direction during a contested proceeding, which do not constitute duty and are ultimately found refundable after the demand is set aside, are not governed by the limitation prescribed for refund of duty under Section 11B of the Central Excise Act, 1944.

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