2025 (9) TMI 58 - AT - Central Excise

Appeal dismissed; interest payable on Rs.50 lakh retained by department under Section 35FF read with Section 11BB

CESTAT (Allahabad) - AT dismissed the appeal regarding interest on Rs.50 lakh retained by the department, holding there were no merits in the challenge ... Eligibility of interest on amount of Rs. 50 lacs, retained by the department for such long period without authority of law - rate of interest prescribed in Section 11BB of the CE Act 1944, from the date of deposit to the date of actual refund - HELD THAT:- The same issue has been considered by this Tribunal in the case of M/s Dhampur Sugar Mills Ltd. [2025 (7) TMI 839 - CESTAT ALLAHABAD] wherein it was held that 'interest will be payable as per the provisions of Section 35FF read with Section 11BB of the Central Excise Act'. There are no merits in this appeal. The interest will be payable as per the provisions of Section 35FF read with Section 11BB of the Central Excise Act. There are no infirmity in the impugned order. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether interest is payable on an amount deposited with the department during investigation and subsequently refunded after judicial determination, and if so, from which date interest accrues. 2. Whether provisions governing interest on delayed refund - specifically the statutory schemes for refund of duty (Section 11B/11BB) and for pre-deposits in appeals (Section 35F/35FF) - apply to amounts deposited during investigation and determine the rate and commencement of interest. 3. What rate of interest is appropriate where statutory provisions prescribe a rate (or limit) but judicial decisions have awarded higher rates on equitable or restitutionary grounds; and whether Sandvik jurisprudence and its progeny require awarding interest from date of deposit at 12% (or other rates) in such cases. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Liability to pay interest on amounts deposited during investigation and later refunded Legal framework: The statute contains distinct provisions addressing (a) refund of duty and interest claimed under the refund procedure (Section 11B with interest under Section 11BB), and (b) refund of pre-deposits made under appellate conditions (Section 35F with interest under Section 35FF). Constitutional principle (Article 265) forbids levy/collection without authority of law; unjustified collection/retention attracts restitutionary liability. Precedent treatment: The Court reviewed authorities finding that money collected or retained without authority of law gives rise to restitution and an entitlement to interest as a corollary (i.e., doctrine of restitution; cases awarding interest where collection was illegal or retention unjustified). The Tribunal and several benches have treated deposits made during investigation as refundable with interest in appropriate cases. Interpretation and reasoning: The Tribunal concluded the present deposit was made during investigation before issuance of the struck-down show cause notices and therefore was not a statutory pre-deposit under Section 35F. Because the department retained the sum without legal authority for a prolonged period, the retention constituted unjust enrichment and triggered restitutionary obligations including interest. The Tribunal invoked constitutional principle that no tax may be collected without authority of law and the consequent rule that refund liability dates from the date of collection when collection was without authority. Ratio vs. Obiter: Ratio - where a departmental collection is without authority of law and later held non-sustainable, the collector's retention can give rise to restitutionary interest beginning from date of collection. Obiter - general observations about when restitution applies in other factual matrices (e.g., deposits made to avail interim orders) beyond the facts before the Tribunal. Conclusion: Interest is payable on an investigation deposit refunded after judicial determination because the amount was retained without legal authority; entitlement to interest exists as restitutionary compensation for unlawful retention. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Applicability of Section 35FF (and Section 11BB) to deposits made during investigation and the proper commencement point for statutory interest Legal framework: Section 35FF addresses interest on delayed refund of amounts deposited under Section 35F (pre-deposits in appeals), with different formulations pre- and post-amendment; Section 11BB prescribes interest on delayed refund of duty claims, starting after three months from date of receipt of refund application (or related triggering events as per statute and notifications fixing rates). Precedent treatment: Authorities distinguish pre-deposits (Section 35F/35FF) from refunds of duty subject to 11B/11BB. Some tribunals/Benches have applied Section 35FF when amounts were pre-deposits; other decisions hold that a deposit made in investigation is not a pre-deposit and that Section 11BB (or restitutionary principles) governs. Supreme Court and High Court rulings emphasize statutory wording: Section 11BB interest generally begins after three months from receipt of refund application; Section 35FF begins on the date the amount becomes refundable under appellate order. Interpretation and reasoning: The Tribunal found the adjudicating authority wrongly applied Section 35F/35FF because the deposit pre-dated issuance of the show cause notices and was not made as a statutory pre-condition under Section 35F. Consequently Section 35FF does not apply. Separately, where Section 11BB is applicable (refund claims under Section 11B), interest runs only after three months from the date of receipt of the refund application. The Tribunal reconciled statutory triggers with restitutionary doctrine: statutory interest regimes govern when they apply; where they do not, equitable restitutionary principles supply relief. Ratio vs. Obiter: Ratio - Section 35FF is inapplicable to deposits not made under Section 35F; where Section 11BB governs, its temporal trigger (three months after receipt of refund application) controls statutory interest. Obiter - extended discussion of distinctions between various refund regimes and comparative statutory schemes. Conclusion: Section 35FF does not apply to investigation deposits not made under Section 35F; when refund claims fall under Section 11B/11BB the statutory commencement (three months from application receipt) governs interest; however where retention was without authority of law restitutionary interest from date of deposit is available notwithstanding inapplicability of Section 35FF. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Appropriate rate of interest - statutory rates versus rates fixed by courts on restitutionary/equitable grounds and the scope of Sandvik and related authorities Legal framework: Statute and executive notifications fix interest rates under various provisions: notifications under Sections 11BB, 11AA, 11DD, 11AB etc. grant rates ranging (in examples cited) from 5%-36%, 6%, 15%, 18% depending on provision and time. Where statute or notification prescribes a rate, courts are generally bound to apply that rate for statutory interest. Precedent treatment: The Tribunal surveyed a body of decisions following a leading precedent that on facts of extreme and inordinate delay courts have awarded higher or equitable rates (including 9% or 12%) as compensation. Several tribunals and High Courts awarded 12% on refunds of pre-deposits or investigation deposits relying on higher-court directions; other authorities confined awards to the statutory rate (e.g., 6%) where statute governs and delay was not inordinate. Supreme Court jurisprudence emphasizes that where statute prescribes interest, it governs; exceptional equitable awards depend on peculiar facts (e.g., decades-long delay) and are fact-sensitive. Interpretation and reasoning: The Tribunal acknowledged decisions awarding interest from date of deposit at 12% in some benches but held that those outcomes derive from factual/ equitable considerations or different statutory contexts. Given that statutory provisions and their provisos applied to this case (and the deposit was governed by the statutory scheme in force when deposited), the Tribunal found no basis to depart from the statutory mechanism. The Tribunal endorsed the view that restitutionary relief may permit interest from deposit date, but the rate must conform to statutory prescriptions unless exceptional equities warrant a different figure. Ratio vs. Obiter: Ratio - where the statutory provision governs the subject-matter and prescribes the rate or range, the court must ordinarily follow the statutory rate; exceptional awards above statutory rate require special facts (inordinate delay, distinct restitutionary grounds). Obiter - endorsement of particular quantum (12%) adopted by some tribunals in other cases is noted but not treated as binding in face of statutory prescriptions. Conclusion: The Tribunal dismissed the appellant's claim for interest at 12% on statutory grounds: interest entitlement exists (for restitution) but, where the statutory refund procedure applies, interest must be awarded in accordance with the applicable statutory trigger and rate; the impugned order granting interest as per Section 11BB and dismissing the 12% claim is upheld. OVERALL CONCLUSION (cross-references) Where a departmental collection is without authority of law, restitution including interest may follow from the date of collection (Issue 1). However, whether statutory provisions for delayed refund (Section 11BB) or for pre-deposits (Section 35FF) apply depends on the nature of the deposit (Issue 2); statutory triggers (e.g., three months after application receipt for Section 11BB) ordinarily determine commencement of statutory interest. Where statute prescribes rates or limits, courts should ordinarily award interest in terms of the statute and notifications; departures to higher equitable rates require exceptional factual justification (Issue 3). Applying these principles to the facts, the Tribunal found the adjudicating authority erred in treating the deposit as a Section 35F pre-deposit, affirmed entitlement to interest for unlawful retention, but upheld awarding interest under the statutory framework rather than granting 12% as claimed by the appellant.