Interest payable at 12% on investigation deposits from date of deposit until refund under applicable rules

The CESTAT Kolkata allowed the appeal, holding that interest is payable on refunds of amounts deposited during investigation from the date of deposit until refund. The impugned order rejecting the appeal on maintainability grounds was set aside. The appellant is entitled to interest at 12% per annum, as supported by Supreme Court precedents, on the refunded amount. The appeal was allowed to the extent of granting interest, reversing the denial in the original order.

---

---

ISSUES:

Whether interest is payable on amounts deposited during the course of investigation and subsequently refunded under the Customs Act, 1962.Whether the provisions of Sections 129E and 129EE of the Customs Act, 1962, mandate payment of interest on delayed refunds of pre-deposited amounts.Whether the limitation period under Section 11B of the Central Excise Act, 1944 (applicable to service tax claims) applies to refunds of amounts paid under mistaken belief or without authority of law.The applicable rate of interest on delayed refund of amounts deposited during investigation.Whether reliance on circulars or instructions issued by the Central Board of Indirect Taxes and Customs is binding on the department regarding interest on refunds.

RULINGS / HOLDINGS:

Interest is payable on amounts deposited during the course of investigation and subsequently refunded, from the date of deposit till the date of refund, under the Customs Act, 1962, as the issue is "no longer res integra".Sections 129E and 129EE of the Customs Act, 1962, provide for payment of interest on delayed refunds of pre-deposited amounts, and the rate fixed by notification under Section 129EE applies from the date the provision came into force.The limitation period under Section 11B of the Central Excise Act, 1944, does not apply to refunds of amounts paid under mistake of law or without authority, as such payments do not constitute "duty of excise" or "service tax" payable in law.The appropriate rate of interest on delayed refunds of such amounts is 12% per annum, as supported by binding Supreme Court decisions and consistent tribunal and High Court rulings.Circulars or instructions issued by the Central Board of Indirect Taxes and Customs are binding on the department and cannot be disregarded in denying interest on refunds.

RATIONALE:

The Court relied on the legal framework established by Sections 129E and 129EE of the Customs Act, 1962, which govern the payment of interest on delayed refunds of pre-deposited amounts.Precedents from the Hon'ble Karnataka High Court and the Supreme Court affirm that amounts paid under mistake of law or without authority do not attract the limitation under Section 11B of the Central Excise Act, 1944, and are refundable with interest.Decisions of this Tribunal and various High Courts (including Calcutta, Delhi, and Telangana High Courts) consistently hold that interest at 12% per annum is payable on delayed refunds of amounts deposited during investigation or paid under mistake.The Court emphasized that the department lacks authority to retain amounts paid without lawful obligation and that withholding such amounts without compensation is unjustifiable and contrary to principles of equity and restitution.The Court further noted that the binding nature of circulars or instructions from the Central Board of Indirect Taxes and Customs requires the department to comply with prescribed procedures and grant interest where applicable.The judgment in Sandvik Asia Ltd. v. Commissioner of Income Tax was cited to support the principle that interest is payable as compensation for wrongful withholding of amounts due, reinforcing the statutory and judicial consensus on the matter.

---