2026 (3) TMI 1369 - AT - Central Excise

Interest on investigation-stage deposits follows when payment was not voluntary duty discharge and refund is due.

An investigation-stage deposit made after search proceedings and at departmental insistence was treated as a mistaken payment, not a voluntary discharge ... Interest on refund of investigation deposit - pre-deposit - Voluntary duty payment Or a deposit made under a mistaken notion - applicability of section 11 - refund with interest. Interest on refund of investigation deposit - Payment y duty payment - HELD THAT:- From a perusal of the records, it can be seen that such payment was made at the instance of the Department, pursuant to the search operations conducted by the Officers of the Directorate General of Central Excise Intelligence (DGCEI) at the appellant’s factory premises and other premises on 18.07.2008, which fact has also been recorded at paragraph 2.0 of the impugned order dated 28.08.2025. Hence, such payment made by the appellant cannot be construed as a voluntary payment of central excise duty on the part of the appellant. The Tribunal found from the record, including the finding noted in the impugned appellate order, that the amount was deposited during search proceedings on departmental insistence and while the appellant was contesting the very duty liability. Such payment, therefore, could not be treated as a voluntary discharge of central excise duty, but as an amount paid under a mistaken notion of liability. On that basis, the amount did not assume the character of duty so as to attract Section 11B for denying the claim of interest. Following its earlier decision in M/s. Harrisons Industries [2025 (7) TMI 220 - CESTAT KOLKATA] which had been carried in appeal and against which the High Court found no substantial question of law, the Tribunal held that interest at 12% was payable from the date of deposit till refund. The decision in M/s. Goldy Engineering Works [2025 (4) TMI 1186 - SC ORDER] was distinguished because, in that case, the payment had been treated as duty and the question of payment under a mistaken notion at the instance of the Department had not arisen in the same manner. [Paras 7, 8, 9, 10] The appellant was held entitled to interest at 12% per annum on the refunded amount from the date of deposit during investigation till the date of refund. Final Conclusion: The Tribunal allowed the claim for interest and held that the refunded amount, having been deposited during investigation under departmental insistence and under a mistaken notion of liability, could not be treated as voluntary duty payment. Interest at 12% per annum was directed to be paid from the date of deposit till the date of refund. Issues: Whether the amount deposited during investigation was a voluntary duty payment or a deposit made under a mistaken notion at the department's insistence, and whether interest at 12% per annum was payable on the refunded amount from the date of deposit till the date of refund.Analysis: The amount of Rs. 20,00,000/- was deposited during investigation pursuant to departmental insistence after search proceedings, and the records showed that it was not a voluntary discharge of excise duty. Such payment was treated as an amount paid under a mistaken notion regarding duty liability, not as a pre-deposit made voluntarily under Section 35F of the Central Excise Act, 1944. On that footing, Section 11B of the Central Excise Act, 1944 was held inapplicable to deny interest, and the reasoning adopted in the earlier tribunal decision allowing interest on investigation-stage deposits was followed. The claim for interest was also supported by the view that refund of such amount must carry interest automatically when the assessee succeeds.Conclusion: The deposit was not a voluntary duty payment and the assessee was entitled to interest at 12% per annum from the date of deposit till the date of refund.