Interest on refunds of investigation deposits clarified as compensatory; twelve percent interest awarded from deposit date until sanction of refund.

Amount deposited during investigation, being neither duty nor a statutory pre-deposit, must be treated as illegally retained revenue; therefore the depositor is entitled to compensatory interest on the refunded sum. The reasoning rejects application of Section 11BB to such investigation deposits but applies the compensatory interest principle at twelve percent per annum from date of deposit until sanction of refund. The adjudicating authority is directed to modify the appeal order and pay interest on the sanctioned refund for the stated period, resulting in allowance of the appellant's appeal with consequential relief.

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Issues: Whether interest is payable on the refunded deposit retained by the Department during investigation under Section 11BB of the Central Excise Act, 1944 or otherwise, and at what rate and period such interest should be awarded.

Analysis: The deposit in question was not a duty payment or a pre-deposit under Section 35F but an amount deposited during investigation and later ordered refunded on quashing of demands. Section 11BB governs interest on refund of duty under Section 11B and is therefore inapplicable to amounts that are not duty. Section 35FF (as amended) and judicial precedents (including Sandvik Asia Ltd., ITC, and subsequent High Court and Tribunal decisions) establish that where the Department has retained amounts not constituting duty or lawful pre-deposit, interest/compensation for unjustified retention is awardable. Notifications fixing varying statutory interest rates have been considered, and Tribunal authority supports awarding interest at 12% per annum as an appropriate compensatory rate for sums unjustifiably retained from date of deposit until date of refund.

Conclusion: Interest is not payable under Section 11BB for the refunded deposit; instead, the claimant is entitled to interest as compensation at the rate of 12% per annum on the refunded amount from the date of deposit until the date of refund, in favour of the assessee.

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