Deposit to be Treated as Amount Illegally Retained by Department: CESTAT Orders 12% Interest on Refund u/s 11BB [Read Order]

The Allahabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that interest at the rate of 12% per annum is payable on amounts deposited during investigation and subsequently refunded. The Bench held that such deposits cannot be treated as “duty” under Section 11BB of the Central Excise Act, 1944.

M/s Hindustan Mint & Agro Products Pvt. Ltd., appealed against Order-in-Appeal dated 25.04.2022 passed by the Commissioner (Appeals), CGST & Central Excise, Noida. The appellant, engaged in the manufacture and export of various Mentha products, had availed CENVAT Credit of duty paid on raw materials received from manufacturers based in the State of Jammu and Kashmir. Subsequently rebate was claimed after export of finished goods.

An enquiry was initiated on the ground that the appellant was availing CENVAT credit only on the basis of invoices issued without receipt of goods. During investigation, the appellant deposited Rs.10,00,000/- to avoid any coercive action though it did not agree with the allegation. Four show cause notices were issued for recovery of CENVAT credit for different periods from 2003-04 to June, 2009.

As adjudication was not completed even after a lapse of 12 years, the Punjab & Haryana High Court quashed the show cause notices via judgment dated 22.01.2021.

Consequent to the judgment, the appellant filed a refund claim dated 19.03.2021 for Rs.10,00,000/-. The Assistant Commissioner sanctioned the refund but rejected the interest payable thereon. On appeal, the Commissioner (Appeals) allowed interest as prescribed under Section 11BB of the Central Excise Act, 1944. Aggrieved, the appellant filed the present appeal contending that the refund was of an amount retained by the Department for more than 12 years, and therefore a higher rate of interest @12% should be granted.

The Tribunal observed that under Section 11BB, interest is required to be paid from expiry of three months from the date of application for refund. It was noted that in the present case, the amount was deposited without any self-assessment or without any order of the proper officer. When the amount deposited is not duty, there is no legitimacy to apply provisions of Section 11BB, and the deposit is to be treated as an amount illegally retained by the Department.

Relying on decisions including Sony Pictures Networks (P) Ltd., Marshall Foundry & Engg. (P) Ltd. v. CGST Excise Appeal, and Modern Threads India Ltd., the Tribunal held that interest at 12% is required to be paid on such amounts from the date of deposit till the date of refund.

Accordingly, the impugned Order-in-Appeal was modified and the Adjudicating Authority was directed to pay interest of 12% on the sanctioned amount. The appeal was allowed with consequential relief.

The order was pronounced by a Bench comprisingP.K. Choudhary (Judicial Member).

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