Pre-deposit refund under excise law must follow quashing of penalty, and delayed repayment attracts statutory interest.

A pre-deposit made as a condition for hearing an excise appeal, and linked to that appeal in the challan, loses its basis once the penalty is set aside. The amount is then refundable to the person who made it or on whose behalf it was deposited, and the department cannot treat it as a company refund or adjust it against other liabilities under the general adjustment provision. If refund is not made within three months from the final appellate order, delayed payment attracts statutory interest from the due date until refund.

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Issues: Whether the amount deposited by the appellant as a pre-condition for hearing the appeal, after the penalty was set aside, was required to be refunded to him and whether the department could adjust that amount against dues of the company; and whether interest was payable for delayed refund.

Analysis: The deposit was made pursuant to the stay order under Section 35F of the Central Excise Act, 1944 and was specifically linked in the challan to the appellant's appeal. Once the penalty imposed on the appellant was quashed, the pre-deposit lost its basis and the excise authorities were bound to return it to the person who made the deposit or on whose behalf it was made. The Assistant Commissioner could not treat the amount as a company refund and adjust it against other liabilities by invoking Section 11 of the Central Excise Act, 1944. Since the amount ought to have been returned within three months from the final appellate order, delay beyond that period attracted interest under Section 11BB of the Central Excise Act, 1944.

Conclusion: The adjustment was held unsustainable, the refund was directed to be made to the appellant, and interest at 12% was held payable from the due date till payment.

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