Refund of Pre-Deposit Must Include Interest: CESTAT Rules in Customs Case [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, adjudicated a dispute concerning entitlement to interest on the refund of pre-deposit under the Customs Act, 1962. The Tribunal held that statutory interest is payable even when the pre-deposit was made in relation to a penalty, and directed the Customs Department to pay the same.

The case was filed by Paresh Daxini, who had been penalized rupees five lakh for allegedly aiding an importer in the diversion of duty-free imported goods into the local market. In order to pursue his appeal before the Tribunal, he deposited rupees two lakh and fifty thousand as a statutory pre-deposit under Section 129E of the Customs Act, 1962.

His penalty was subsequently reduced to rupees one lakh, and he received a refund of rupees one lakh and fifty thousand in March 2019. However, the refund was made without any interest, despite repeated applications. His appeal before the Commissioner of Customs (Appeals) claiming interest was rejected in March 2021, leading to the present appeal before CESTAT.

Represented by Devraj Kansara, the appellant argued that the right to interest on the refund of pre-deposit is a statutory provision under Section 129EE of the Customs Act, 1962. The law refers broadly to the “amount deposited under Section 129E,” without limiting it to deposits made against duty. Therefore, even when the pre-deposit relates to penalty, the assessee is entitled to interest.

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It was also submitted that circulars issued by the Central Board of Excise and Customs in Circular No. 984/08/2014-CX and Circular No. 802/35/2004-CX made it mandatory for the Department to pay interest on pre-deposit refunds, regardless of whether further appeals were contemplated.

Represented by Krishna Azad, the Department, argued that interest was not payable on penalty-related deposits. He relied on the Supreme Court decision in Commissioner of Customs (Port), Kolkata v. Coronation Spinning India (2015).

The Bench of Dr. Suvendu Kumar Pati, Judicial Member, examined Section 129EE and observed that it clearly covers “any amount deposited under Section 129E,” which includes pre-deposit against penalty. The Tribunal held that interest accrues from three months after the appellate order dated 28.02.2006, and that the Department had no justification for withholding it. The appeal was accordingly allowed, and the Department was directed to pay the interest within two months.

The Tribunal relied on CBEC Circular No. 984/08/2014-CX and Circular No. 802/35/2004-CX, both of which emphasized that refunds of pre-deposit must be accompanied by interest and that delays beyond three months could attract recovery of interest from the defaulting officers responsible.

Accordingly, the order of the Commissioner of Customs (Appeals) was set aside.

Therefore, the appeal of the assessee was allowed.

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