2025 (10) TMI 920 - AT - Service Tax

12% interest claim denied; refund interest under Central Excise Act fixed at 6% p.a. after three-month period

CESTAT upheld denial of a 12% interest claim and confirmed interest on refund/deposit under the Central Excise Act is governed by the Central Government ... Rejection of request for grant of interest at the rate of 12% on the sanctioned amount of refund - amount was deposited at the stage of investigation, under protest - provisions of Section 11B and 11BB of the Central Excise Act, 1944 was wrongly referred by Commissioner (Appeals) or not - HELD THAT:- The rate of interest while refunding the amount deposited under Section 35F of Central Excise Act, 1944 can be rate between 5% to 36%, however, subject to such rate as has been fixed by the Central Government by notification in the Official Gazette. It has been brought to notice that the Central Government has issued a N/N. 24/2014-CE dated 12.08.2014 vide which the rate of interest at 6% per annum has been fixed. The joint reading of all the provisions including the notification as quoted above makes it clear that the interest on the amount of pre-deposit/revenue deposit (the amount of Section 35FF of Central Excise Act, 1944) shall be awarded at the rate of 6% per annum for the period prior 06.08.2014; from the date after the expiry of three months of the date of refund application till the payment thereof. The interest can be awarded at the rate of 6% per annum only - there are no infirmity in the order under challenge. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts deposited during investigation under protest are to be treated as pre-deposit/revenue deposit and thereby fall within the scope of Section 35F (and Section 35FF) rather than Section 11B/11BB. 2. What is the correct legal rate of interest payable on refund of amounts deposited under Section 35F for the period prior to 06.08.2014 - whether the statutory/notification rate (6%) or a higher rate (12% or other) applies. 3. Whether exceptional decisions awarding higher interest or compensation justify departure from the statutory/notification rate when the statutory scheme prescribes a rate and mechanism for fixation of interest. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of payments made during investigation under protest - applicability of Section 35F/35FF vs Section 11B/11BB. Legal framework: Payments made under protest during investigation are governed by the provisions applicable to deposits under Section 35F and refunds under Section 35FF; Section 11B/11BB governs interest on other types of deposits/refunds and contains its own limitation and rate provisions. Precedent Treatment: Multiple High Court and Tribunal decisions have treated payments made under protest during investigation as pre-deposits/revenue deposits and have held Section 11B not applicable to such payments. This line of authority has been applied by the Court in the present case. Interpretation and reasoning: The admitted facts show the amount was deposited during investigation under protest and some show cause notices were issued after the deposit. The Court adopts the established view that such deposits are akin to pre-deposit/revenue deposit under the statutory scheme and therefore fall within Section 35F/35FF rather than Section 11B. Ratio vs. Obiter: Ratio - payments deposited during investigation under protest constitute pre-deposits/revenue deposits and Section 11B is not applicable to them for purposes of interest entitlement. (Supporting precedents are applied.) Conclusion: The deposited amount is governed by Section 35F/35FF; Section 11B/11BB does not apply. Issue 2: Rate of interest payable on refund of amounts deposited under Section 35F for period prior to 06.08.2014. Legal framework: Section 35FF prescribes interest on delayed refund of amounts deposited under Section 35F. The provision authorises payment of interest 'at such rate, not below five per cent and not exceeding thirty-six per cent' as fixed by the Central Government by notification. For refunds consequent to appellate orders prior to 06.08.2014, the statutory scheme provided interest after a three-month period at the rate specified in the corresponding provision and by notification. Precedent Treatment: The Government fixed the rate at 6% by a notified instrument binding for the relevant period. The Court relies on the legislative text and the notification to determine the applicable statutory rate. Decisions that awarded the same notified statutory rate are followed. Interpretation and reasoning: The statutory text is plain and unambiguous: where the statute delegates rate fixation to the Government by notification, the notified rate governs. For the period prior to 06.08.2014, the Government had fixed 6% per annum; accordingly interest entitlement under Section 35FF is limited to that notified rate. The Court applies the principle that plain statutory language must be given effect to and that a Tribunal must exercise jurisdiction within the parameters of the statute and cannot substitute a different rate absent statutory or notified authority. Ratio vs. Obiter: Ratio - where Section 35FF authorises interest at a rate to be fixed by notification, the notified rate (6% for the period in question) governs the entitlement; tribunals must award interest in accordance with the statute and the notification. Conclusion: Interest on the refunded amount for the period prior to 06.08.2014 is payable at 6% per annum as fixed by the Government notification; higher rates cannot be awarded in ordinary cases under Section 35FF. Issue 3: Scope for awarding higher interest or compensation in view of exceptional precedents. Legal framework: The statutory scheme prescribes the mechanism for interest determination; special equitable relief or compensation may arise only in exceptional circumstances and, when invoked, must be supported by distinct legal basis or extraordinary factual delays. Precedent Treatment: Some higher court decisions have awarded enhanced interest or compensation where there was extreme and inordinate delay (amounting to de facto compensation), or where a superior court exercised its broader equitable jurisdiction. Those decisions have been recognised but treated as fact-specific or as exercises of powers not directly replicable by the Tribunal under the statutory interest provisions. Interpretation and reasoning: The Court distinguishes exceptional precedents granting higher rates (or compensation) on the ground that they arose from extraordinary factual matrices - e.g., very long delays - or through jurisdictional reach of superior courts. The Tribunal is constrained to apply the statutory framework; it lacks inherent powers to grant compensation beyond the statutory rate where the statute and notification prescribe a specific rate for the period under consideration. Ratio vs. Obiter: Ratio - exceptional awards of enhanced interest/compensation are distinguishable and do not permit routine departure from the notified statutory rate under Section 35FF; Obiter - commentary that tribunals must adhere to statutory limits and may not invoke superior-court compensatory reasoning as a general rule. Conclusion: The exceptional precedents do not justify awarding 12% (or higher) interest in the present case; the notified statutory rate of 6% applies and is properly awarded by the adjudicating authority. Cross-References and Consolidated Conclusion Given (a) the admitted character of the deposit as a payment under protest during investigation (pre-deposit/revenue deposit), (b) the statutory scheme of Section 35FF and the Government notification fixing the rate at 6% for the relevant period, and (c) the fact-specific nature of exceptional higher-interest awards, the adjudicating authority correctly awarded interest at 6% per annum. The Tribunal affirms that the appeal lacks merit and dismisses it.