2026 (2) TMI 230 - AT - Central Excise

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 ... Interest on refund - Refund of amounts deposited during investigation - Interest u/s 11BB - Pre-deposit u/s 35F - Unlawful retention of revenue deposits - Compensation by way of interest at 12% per annum - Article 300A - protection of property - Whether interest is liable to be paid on the sanctioned amount of refund in accordance with provisions of Section 11BB of the Central Excise Act, 1944 or otherwise - HELD THAT:- In the present case, it is beyond doubt that amount was deposited without any self-assessment or without any order of the proper officer. The amount deposited during investigation is of course not a deposit towards any duty but only an amount deposited by the assessee to avoid harassment by the investigating officers. When amount deposited by the Appellant is not duty, there is no legitimacy to apply provisions of Section 11BB for payment of interest. So, the deposit made by the Appellant is to be treated as an amount illegally retained by the Department. Already held that amount deposited was neither duty nor any pre-deposit for filing of appeal. The amount was deposited during the investigation and its refund became due when SCNs issued for demand were quashed by the Hon’ble Court. So, the issue regarding payment of interest would not be covered under Section 11BB of the Central Excise Act, 1944 as held by the Commissioner (Appeals). In the case of M/s Jai Bhawani Concast Pvt. Ltd. [2022 (9) TMI 1281 - CESTAT NEW DELHI] the Tribunal in its decision while holding that the refund of amount deposited during investigation and payment of interest thereon, the Appellant is entitled to interest on the full amount of deposit from the date of deposit till the date of refund @12%. In view of the ratio of above judgments, interest is required to be paid on the amount of refund sanctioned with effect from date of deposit of the amount till date of sanction @12%. Thus, modify the impugned Order-in-Appeal and the Adjudicating Authority is directed to pay interest @12% on the sanctioned amount for the period as provided under Section 11BB of the Central Excise Act. Appeal filed by the Appellant is allowed with consequential relief. 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.