No Interest on Timely Refund of Pre-Deposit, Rules CESTAT: Assessee’s Appeal Rejected [Read Order]

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has dismissed the appeal filed by Crystal Crop Protection Ltd., seeking interest on a pre-deposit refunded by the Department. The Tribunal held that, since the refund was processed within three months of the application date, no interest was payable under the law.

The matter revolved around a pre-deposit of ₹75 lakhs made by Crystal Crop Protection Ltd. during the pendency of proceedings related to a disputed demand of ₹1.44 crore in erroneous refund and approximately ₹17 lakh in allegedly wrongfully availed CENVAT credit. The adjudicating authority had confirmed the original demand in April 2011 but later set it aside by the CESTAT itself through a detailed order dated August 27, 2018, bringing an end to the litigation.

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Following this, the appellant filed a refund application on 13 November 2018, and the Assistant Commissioner sanctioned the refund via an order dated 10 January 2019. However, the Department rejected the appellant’s request for interest on the refunded amount. The Assistant Commissioner reasoned that the refund had been sanctioned within the statutory three-month window as prescribed under Section 11B of the Central Excise Act, 1944. Dissatisfied, the appellant escalated the matter through an appeal, which was also dismissed by the Commissioner (Appeals) on 21 September 2022. The authorized representative of Crystal Crop Protection Ltd. argued that the law had evolved to recognize the right of an assessee to receive interest from the date of deposit, not just from the date of application. He cited several decisions in favor of this interpretation, including Riba Textiles Ltd., Indus Towers Ltd., Impressive Management Solutions Pvt. Ltd., and even the Supreme Court’s decision in Sandvik Asia Ltd., where it was held that unjust delay in refunds warranted compensation by way of interest.

It was further contended that, although the Central Excise Act does not explicitly define the treatment of pre-deposits outside of Section 35FF, the Department had, in practice, treated such deposits at par with duties for refund. Therefore, he argued, the interest should also be granted in line with the principles governing duty refunds.

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On the other hand, the Department, represented by Shri Siddharth Jaiswal and team, firmly asserted that the statutory scheme under Sections 11B and 11BB of the Central Excise Act governs all refunds except for those explicitly covered under Section 35FF. They contended that the ₹75 lakh deposit made by the assessee was not a mandatory pre-deposit as per appellate requirements under Section 35F, nor did any adjudicating or appellate authority direct it.

The Department relied heavily on the recent judgment of the Hon’ble Supreme Court in Goldy Engineering Works, which clarified that interest on refund is payable only after the expiry of three months from the date of application as per Section 11BB.

The Bench, comprising Hon’ble Mr. S.S. Garg (Judicial Member) and Hon’ble Mr. P. Anjani Kumar (Technical Member), examined the facts and the evolving jurisprudence. The Tribunal acknowledged the confusion surrounding interest on refunds, especially concerning deposits made during investigations or litigation. However, it noted that the law had now been clarified by the Delhi High Court in Goldy Engineering Works, a ruling subsequently affirmed by the Supreme Court.

The CESTAT asserted that the refund in this case had been sanctioned on 10.01.2019, within less than two months from the refund application dated 13.11.2018, thereby fulfilling the condition under Section 11BB. Since there was no delay, there was no statutory basis to award interest. The Tribunal also made it clear that interest provisions under Section 35FF were not applicable since the deposit made by Crystal Crop was not a statutory pre-deposit under that provision. The CESTAT dismissed the appeal, holding that while lessees are entitled to interest in cases of delayed refunds, such entitlement strictly flows from statutory mandates.The tribunal held that interest provisions under Section 35FF were not applicable since the deposit made by the assessee was not a statutory pre-deposit under that provision

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