Pre-deposit during investigation cannot be split as duty; statutory interest applies on the full refundable amount.

An amount deposited during investigation before any assessment, adjudication or confirmed duty liability arises remains a deposit or pre-deposit and cannot be partly appropriated as duty merely because it was credited under the customs head of account. The entire deposited sum was therefore treated as pre-deposit in the facts stated. On refund, only statutory interest was recoverable, and interest was payable on the full refunded amount for the period prescribed by law under section 129EE of the Customs Act, 1962, with no claim for interest on interest. The refund orders were set aside and the matter was remitted only for recalculation of interest on the whole deposit.

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Issues: (i) Whether the amount of Rs. 12 crores deposited during investigation could be bifurcated into pre-deposit and duty, or had to be treated as a deposit/pre-deposit in its entirety; (ii) Whether interest was payable on the entire refunded amount from the date of deposit till the date of refund.

Issue (i): Whether the amount of Rs. 12 crores deposited during investigation could be bifurcated into pre-deposit and duty, or had to be treated as a deposit/pre-deposit in its entirety.

Analysis: The amount was paid before any assessment, adjudication, or confirmed duty liability had arisen. A sum deposited during investigation, without an assessed or adjudicated duty obligation, does not become duty merely because it is credited under the customs head of account. The Customs Act, 1962 does not authorize compelled advance collection of sums towards speculative future liabilities. Once an appeal was filed against the adjudication order, the balance beyond the mandatory pre-deposit could not be appropriated as duty, and the entire amount remaining unpaid was liable to be treated as part of the pre-deposit in the facts of the case.

Conclusion: The entire Rs. 12 crores was to be treated as pre-deposit and not to be split between pre-deposit and duty, in favour of the assessee.

Issue (ii): Whether interest was payable on the entire refunded amount from the date of deposit till the date of refund.

Analysis: The claim for 12% interest was not pressed, and the request was confined to interest as permissible in law. The authority held that only statutory interest can be claimed and not interest on interest. Since the amount was to be treated as a pre-deposit in its entirety, the applicable statutory interest under section 129EE of the Customs Act, 1962 was payable on the whole amount from the date of deposit until refund.

Conclusion: Interest was payable on the entire amount at the rate and for the period prescribed by law, in favour of the assessee.

Final Conclusion: The impugned refund orders were set aside and the matter was sent back only for recalculation of interest on the full deposited amount as a statutory pre-deposit.

Ratio Decidendi: An amount deposited during investigation before any assessed or adjudicated duty liability arises remains a deposit or pre-deposit and cannot be appropriated as duty in part, and where such amount is later refundable, statutory interest is payable on the whole amount according to the governing refund provision.

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