Right to Interest Affirmed: CESTAT Grants 12% Interest on ₹5 Cr Investigation Deposit to KLJ Plasticizers [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad has held that interest at the rate of 12 percent per annum is payable on an investigation deposit retained by the customs department, affirming that the right to interest exists even in the absence of a specific statutory provision.

The appellant, KLJ Plasticizers Ltd. had deposited ₹5 crore during a customs investigation that alleged duty evasion on the ground that the actual consumption of inputs was lower than the norms prescribed under the Standard Input Output Norms (SION). A show cause notice was issued, adjudication followed, and the matter ultimately reached the Tribunal, which held that once SION norms are fixed and export obligations are fulfilled, duty cannot be demanded on the basis of actual consumption.

Following this favourable order, the appellant filed a refund application, and the adjudicating authority sanctioned the refund of ₹5 crore. The company then separately applied for interest on the refunded amount, treating it as a deposit retained by the department. The Commissioner (Appeals), however, rejected the claim for interest on the ground that the refund was sanctioned within three months as provided under Section 27A of the Customs Act, 1962.

Represented by Advocate Jayant Kumar, the appellant argued that the ₹5 crore amount was not a “duty” but a “revenue deposit” made during investigation and therefore outside the scope of Section 27 and Section 27A of the Customs Act, 1962. He submitted that interest on such deposits is governed not by statute but by judicial principles laid down in several judicial precedents.

The appellant urged that numerous decisions have consistently held that deposits retained by the revenue must be compensated at 12% per annum, and that the absence of a specific statutory provision does not extinguish the right to interest. It was also contended that filing a separate application for interest is permissible, as the original refund order neither granted nor rejected interest.

The matter was decided by Judicial Member, Somesh Arora, who while addressing the question of jurisdiction and held that a Single Member Bench is competent to adjudicate appeals involving interest disputes, as interest is neither duty, fine, nor penalty, and therefore falls outside the monetary and subject-matter exclusions prescribed under Section 129C(4) of the Customs Act, 1962.

On merits, the Bench held that the sum of ₹5 crore was a revenue deposit made during investigation and not a duty refund governed by Section 27 or Section 27A of the Customs Act, 1962. The Tribunal reasoned that deposits made during investigation stand on a different footing from statutory refunds and are governed by judicially established principles of compensation.

Relying on a series of precedents,the Bench held that when the revenue retains a taxpayer’s money without authority beyond the period necessary, the taxpayer is entitled to interest at a compensatory rate. Further, noted that courts and appellate bodies have consistently applied an interest rate of 12% per annum on such deposits, considering it a fair and equitable rate.

Applying this principle, the Bench directed the customs department to pay interest at 12% per annum to KLJ Plasticizers from the date of deposit until the date of refund.

Therefore, the appeal was accordingly allowed.

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