Amounts paid under protest during enquiry are revenue deposits, not excise duty under section 11B

CESTAT Hyderabad held that amounts paid under protest during enquiry constitute revenue deposits rather than excise duty under section 11B of Central Excise Act. The tribunal distinguished Supreme Court's Willowood Chemicals judgment as it pertained to IGST Act interest provisions. Revenue Service Authority incorrectly calculated pre-deposit amounts using deposited amount instead of total disputed duty as base. Interest at 6% per annum awarded on refund of revenue deposit portion from deposit dates, following judicial precedents including Sandvik Asia and Poornima Advani cases. Unjust enrichment principles held inapplicable as not invoked by authorities. Appeal allowed with refund subject to cap of Rs.59,98,517.

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The core legal questions considered by the Tribunal in this appeal revolve around the nature of the amount deposited by the appellant under protest during the course of an enquiry and the consequent entitlement to refund and interest. The principal issues are:

1. Whether the amount paid under protest by the appellant constitutes "duty of excise" within the meaning of section 11B of the Central Excise Act, 1944, or whether it is a revenue deposit not covered by that section.

2. The correct legal and factual basis for calculating interest on the refund amount, including the applicability of sections 35F and 35FF of the Act, and the appropriate interest rate.

3. The validity and binding nature of the Circular No.984/08/2014-CX dated 16.09.2014 relied upon by the Refund Sanctioning Authority (RSA) in splitting the refund claim and calculating interest.

4. The applicability of various judicial precedents concerning refund of revenue deposits versus duty and the entitlement to interest thereon.

Issue 1: Nature of the Amount Paid Under Protest - Duty of Excise or Revenue DepositRs.

The legal framework involves the Central Excise Act, 1944, specifically sections 11B and 11BB, which govern refund of duty and interest on delayed refund respectively. Section 11B applies to refund of "duty of excise" and prescribes conditions including limitation and the doctrine of unjust enrichment. The charging section 3 defines "duty of excise" as a tax levied on excisable goods produced or manufactured in India.

The appellant had paid Rs.1,28,95,173/- under protest during enquiry against a demand of Rs.1,62,60,808/- relating to reversal of Cenvat credit on inputs used for exempted goods under Rule 6 of the Cenvat Credit Rules, 2004. The Tribunal's earlier order held that the entire reversal was not warranted and allowed the appellant to opt for payment of a percentage of the value of exempted goods instead.

The Tribunal reasoned that the amount paid under protest was not "duty" in the strict sense but a revenue deposit made during enquiry or audit, which had been appropriated by the Adjudicating Authority towards recovery of the demand. This appropriation did not convert the amount into duty until confirmed. Since the Tribunal set aside the demand, the appropriation failed, and the amount retained remained a revenue deposit.

The Tribunal distinguished refund under section 11B, noting that the doctrine of unjust enrichment was not applied by the RSA, which would have been necessary if the amount were treated as duty. The Circular dated 16.09.2014 was interpreted as clarifying that payments made during investigation or audit prior to filing an appeal are not payments of duty per se, but deposits that acquire the character of pre-deposit only upon filing the appeal.

Precedents cited by the appellant supported this distinction. For instance, in Parle Agro Pvt Ltd, the Tribunal held that refund of revenue deposit is not governed by section 11B, and no statutory interest rate is prescribed. Similarly, Bagadiya Brothers Pvt Ltd held that payments made under protest during investigation are revenue deposits. The High Court in Principal Commissioner CGST Vs Green Valliey Industries Pvt Ltd endorsed that deposits made before any quantified claim are not duty and thus not subject to section 11B.

The Tribunal rejected the Revenue's reliance on judgments related to IGST Act or cases where the issue was delay condonation rather than refund of revenue deposits, finding them factually distinguishable.

Issue 2: Calculation and Rate of Interest on Refund

The RSA had split the refund into two parts: one treated as pre-deposit under section 35F (entitled to interest under section 35FF at 6%) and the other treated as governed by section 11B (no interest paid as refund was timely). The appellant challenged both the classification and the interest calculation, arguing that the entire amount was refundable with interest from the date of deposit and that the RSA's base amount for calculating pre-deposit was incorrect.

The Tribunal agreed that the RSA erred in calculating pre-deposit amounts by basing them on the deposited amount rather than the total disputed duty amount of Rs.1,62,60,808/-. The correct pre-deposit amounts and interest were recalculated accordingly, leading to a higher interest entitlement under section 35FF.

Regarding interest on the revenue deposit portion, the Tribunal found no specific statutory provision prescribing interest for refund of revenue deposits. However, it relied on authoritative Supreme Court and High Court judgments which establish the principle that interest is payable on amounts wrongfully retained by the Government, even absent explicit statutory provision. The rationale is equitable: interest compensates for deprivation of use of money legitimately due to the depositor.

Notable judicial pronouncements cited include:

• The Supreme Court in Poornima Advani & Ors v. Govt. of NCT & Ors, which explained that interest is not a penalty but "the normal accretion on capital" and that equity demands payment of interest on delayed refunds.
• The Supreme Court in Union of India v. Tata Chemicals Ltd, holding that money received and retained without right carries the right to interest.
• Modi Industries Ltd v. CIT, clarifying that where statute is silent on interest, equitable grounds justify reasonable interest rates.

Applying these principles, the Tribunal allowed interest on the entire amount of Rs.1,28,95,173/- from the dates of deposit at the rate of 6% per annum, aligning with the rate applicable under section 35FF for pre-deposits. The Tribunal noted that although some judgments allow interest at 12%, the 6% rate was appropriate here given the statutory context and consistency with pre-deposit interest.

Issue 3: Validity and Binding Nature of Circular No.984/08/2014-CX

The RSA relied on this Circular to split the refund claim and apply different provisions and interest calculations. The appellant contested the binding nature of the Circular on quasi-judicial authorities, citing Supreme Court decisions which hold that Circulars cannot override statutory provisions or bind adjudicatory bodies.

The Tribunal acknowledged that while the Circular provides procedural guidance, it cannot override statutory mandates. However, the Tribunal found no infirmity in the RSA's application of the Circular to the extent it correctly interpreted the statutory provisions relating to pre-deposits under sections 35F and 35FF. The error was in the calculation base, not in the legal principle.

Issue 4: Treatment of Competing Judicial Precedents

The Tribunal carefully analyzed the precedents cited by both parties. It distinguished cases where the payment was held to be duty and subject to section 11B, from those where payments were held to be revenue deposits not attracting section 11B provisions.

The Tribunal declined to follow a Single Member Bench decision that held all pre-deposits must be refunded with 12% interest, noting that statutory provisions under sections 35F and 35FF clearly regulate pre-deposits and interest, leaving no ambiguity.

The Tribunal also found the Revenue's reliance on judgments under the IGST Act and cases concerning delay condonation misplaced, as those facts and statutory contexts differ materially.

Conclusions and Significant Holdings

The Tribunal concluded that:

• The amount paid under protest by the appellant during enquiry is a revenue deposit and not "duty of excise" within the meaning of section 11B of the Act.
• Refund of such revenue deposit is not governed by section 11B, and the doctrine of unjust enrichment under section 11B does not apply.
• The RSA erred in calculating pre-deposit amounts under section 35F and interest under section 35FF by using the deposited amount as the base instead of the total disputed duty amount. The correct calculation leads to higher interest entitlement.
• Interest is payable on the refund of the revenue deposit portion at the rate of 6% per annum from the dates of deposit, based on equitable principles and judicial precedents, despite absence of explicit statutory provision.
• The Circular No.984/08/2014-CX is not binding beyond its statutory interpretation but was correctly applied in principle by the RSA.
• The appeal is allowed with consequential relief, including recalculation and payment of interest as determined.

Verbatim crucial legal reasoning includes:

"The issue covered in the appeal was not relating to duty of excise but it was relating to reversal of amount of credit or payment of an amount equivalent in terms of Rule 6 under any of its sub-clauses cannot be equated, at par, with 'duty' of excise, as relevant to in section 11B, so as to bring it within the purview of section 11B of the Act."

"The amount paid under protest in the course of enquiry was appropriated towards recovery of total duty liability finally confirmed by Adjudicating Authority. This aspect also further gives credence to the submission that till the time it was appropriated, it was not in the nature of duty and the appropriation is only a means to recover the dues to the Government."

"Money received and retained without right carries with it the right to interest. The State having received the money without right and having retained and used it, is bound to make the party good, just as an individual would be under like circumstances."

"Interest is not a penalty or punishment at all, but it is the normal accretion on capital."

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