Relief for Godrej: CESTAT Rules Provisional Refunds Given Under Court Orders Cannot Be Treated as Wrong Refunds, No Interest Payable [Read Order]
CESTAT ruled that provisional refunds sanctioned under court orders cannot be treated as erroneous and no interest is payable on the excess refunded amount.
![Relief for Godrej: CESTAT Rules Provisional Refunds Given Under Court Orders Cannot Be Treated as Wrong Refunds, No Interest Payable [Read Order]](https://images.taxscan.in/h-upload/2025/08/21/2079066-godrej-and-boyce-site-img-recovered.webp "Relief for Godrej: CESTAT Rules Provisional Refunds Given Under Court Orders Cannot Be Treated as Wrong Refunds, No Interest Payable [Read Order]")
The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that provisional refunds granted under binding court orders cannot be treated as erroneous refunds, and no interest can be demanded on them.
Godrej Consumer Products Ltd., the appellant, had manufacturing units in Assam that were eligible for area-based excise duty refund under Notification No. 20/2007-CE. In 2008, the notification was amended, restricting refunds to a value-added percentage.
Godrej challenged the amendment before the Gauhati High Court, which allowed 50% provisional refunds subject to surety bonds. Over time, the company received around Rs. 24 crore in such provisional refunds.
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Later, the Supreme Court upheld the validity of the amended notification in Union of India v. VVF Ltd.. Following this, the authorities fixed special value-added rates for Godrej’s units. Based on these rates, the company was found eligible for Rs. 23.49 crore. The balance excess of Rs. 50.96 lakh was repaid by Godrej in March 2023.
The department demanded interest on the entire Rs. 24 crore, arguing that the refunds were erroneous once the Supreme Court upheld the amendment. The Commissioner (Appeals) upheld this view. Aggrieved, the company filed appeals before CESTAT.
The company’s counsel argued that the provisional refunds were made strictly under court orders and could not be called erroneous. They submitted that only a small excess remained after value-addition fixation, which was already repaid.
They further argued that interest liability cannot be fastened without a statutory provision,and recovery without issuing a show cause notice violated natural justice.
The revenue’s counsel countered that interest was payable under Section 11AA of the Central Excise Act. They argued that the term “duty” under Section 11AA also covered erroneous refunds, and by executing surety bonds, Godrej was bound to return inadmissible amounts with interest.
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The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that refunds sanctioned under interim orders of the High Court and Supreme Court could not be considered erroneous.
The tribunal observed that after adjustments, only Rs. 50.96 lakh was excess, and this was already repaid. The tribunal pointed out that no show-cause notice had been issued before demanding interest, which was a violation of natural justice.
The tribunal explained that recovery of any amount must follow statutory provisions and cannot rely solely on surety bonds. It held that no interest could be demanded on provisional refunds granted under judicial orders, nor on the excess amount that was repaid. The appeals were allowed with consequential relief to the appellant.
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