Kamal Sponge Steel & Power Ltd Vs Commissioner of Central Excise & CGST (CESTAT Delhi)
Summary: The CESTAT Delhi partly allowed the appeal of Kamal Sponge Steel & Power Ltd. concerning interest on the refund of ₹1,40,93,564 deposited during an investigation into alleged clandestine manufacture and removal of steel products. The amount had been paid through four cheques and a debit entry in the CENVAT account between 21 September 2011 and 9 March 2012, before the first of three show cause notices was issued. The Commissioner confirmed the demand and appropriated the deposits on 24 March 2014. After the Tribunal set aside that order with consequential relief on 22 January 2019, the appellant sought refund with interest by letter dated 14 February 2019, received on 26 February 2019. The Joint Commissioner sanctioned the refund on 23 May 2019 without interest, and the Commissioner (Appeals) upheld that decision on 9 September 2020.
The appellant contended that the payments were deposits rather than duty and sought interest from the dates of payment at 12% per annum, relying on Indus Towers and Sandvik Asia. Revenue argued that the amounts had been appropriated towards duty, the refund was governed by section 11B of the Central Excise Act, 1944, and no interest arose under section 11BB because refund was sanctioned within three months. It also submitted that acceptance of the refund sanction under section 11B had attained finality.
The Tribunal rejected the claim for 12% interest. Relying on the larger Bench judgment in Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals, it held that interest must be paid within the statutory framework, at the applicable rate and for the period prescribed by law. It distinguished the provisions governing delayed duty payments, duty refunds and refunds of appellate pre-deposits. The statutory power to notify rates belongs to the Central Government; fairness or equity could not justify the Tribunal prescribing a different rate.
On the character of the payments, the Tribunal found that there was no assessment, adjudicated demand or duty liability when the deposits were made. Merely crediting money under the excise-duty budget head did not make it duty. It explained that the relevant amount must also be paid against an assessment or its modification and must be due. Drawing parallels with unused balances in the erstwhile Personal Ledger Account and the GST electronic cash ledger, it held that such deposits could be reclaimed without waiting for adjudication. Proof of pressure or duress was unnecessary where payment was not against an assessed liability. The Central Excise Act did not empower officers to compel deposits towards anticipated liabilities arising from investigation.
The Tribunal further observed that amounts paid during investigation are accepted towards the pre-deposit required for an appeal under section 35F. In this case, the entire deposit had been retained and treated as the appellate pre-deposit, with no direction to retain only the mandatory portion and refund the balance. Consequently, section 35FF governed interest on the entire amount. The appellant had merely sought consequential refund by letter; even an application framed as a duty-refund claim would not change the underlying character of the payment. Tata Refractories was cited in support of that distinction.
Accordingly, the Tribunal modified the impugned order to treat the entire amount as a deposit under section 35F. Since the principal amount had already been refunded, it directed payment of interest under section 35FF at the applicable rate from the dates of deposit until the date of refund. The appeal was thus partly allowed; the specific demand for 12% interest was rejected. The order was pronounced on 15 October 2026.
Cases Discussed
- Indus Towers Limited v. Commissioner of Central Excise, Central Goods and Service Tax, Gurugram — Service Tax Appeal No. 60744 of 2023 (CESTAT Chandigarh). Cited by the appellant for interest on investigation deposits; the present Tribunal declined the claim for 12% interest.
- Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals — 2013 (296) ELT 433 (SC). Applied to restrict interest to that provided by statute.
- Sandvik Asia Limited v. Commissioner of Income Tax — 2007 (8) STR 193 (SC). Relied upon by the appellant through the cited Tribunal ruling; considered in light of the larger Bench clarification in Gujarat Fluoro Chemicals.
- Tata Refractories and Another v. Sales Tax Officer and Others — (2003) Supreme Court cases 65 (Supreme Court). Cited for the distinction between the nature of a deposit and the statutory provision invoked in a refund application.
- Harshad Mehta v. Custodian — AIR 1998 SC 2291, p. 2298 (Supreme Court). Cited in source note 10 through the statutory interpretation treatise regarding the stages of taxation.
- Martand Dairy Farm v. Union of India — AIR 1975 SC 1492 (Supreme Court). Cited for literal interpretation of taxing provisions rather than an approach based on abstract logic.
- Kalwa Dewdattam v. UOI — AIR 1964 SCC 880, p. 883 (Supreme Court; citation as supplied). Cited in source note 10 through the statutory interpretation treatise regarding the stages of taxation.
- Sales Tax Commissioner v. Modi Sugar Mills — AIR 1961 SC 1047 (Supreme Court). Cited for construing taxing statutes by their express words without importing equitable considerations.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER OF CESTAT DELHI
M/s Kamal Sponge Steel and Power Ltd. filed this appeal to assail the order dated 9.09.2020 passed by the Commissioner (Appeals) upholding the order dated 23.5.2019 passed by the Joint Commissioner and rejecting the appellant’s appeal.
2. We have heard learned counsel for the appellant and learned authorized representative for the Revenue and perused the records.
3. The facts of the case, in brief, are that the appellant manufactures steel products. Suspecting that it had clandestinely manufactured and removed finished goods, the departmental officers2 initiated investigations. Thereafter, three show cause noticees dated 3.5.2012, 6.2.2013 and 25.7.2013 were issued to the appellant.
4. During the investigation and even before the first SCN was issued, the appellant had deposited through four cheques and through a debit entry in its CENVAT account between 21.9.2011 and 9.3.2012 an amount totaling Rs.1,40,93,564/-. The three SCNs were decided by the Commissioner by an Order dated 24.3.2014 in which he confirmed the demand and appropriated the amounts deposited by the appellant.
5. On appeal, this Tribunal, by Final Order dated 22.1.2019, set aside the order of the Commissioner and allowed the appeal with consequential relief to the appellant. Thereafter, the appellant sent a letter dated 14.2.2019 to the Assistant Commissioner asking to refund the amount deposited by it along with interest which letter was received by the department on 26.2.2019.
6. On the above letter of the appellant, the Joint Commissioner passed an order dated 23.5.2019 sanctioning the refund but without any interest.
7. The case of the appellant is that it had deposited the amounts during investigation and they should be treated as deposits and interest should be paid from the date of deposit.
8. The case of the Revenue, on the other hand, is that it was a case of refund of duty consequent upon the final order of this Tribunal and the letter dated 14.2.2019 by the appellant was an application for 3 refund of duty under section 11B of the Central Excise Act, 1944. No interest under section 11BB of the Act was payable since the refund was given within 3 months from the date of the application.
9. What falls for our consideration, therefore, is what is the nature of the amount deposited during the investigation by the appellant and if interest is payable in this case on the amount refunded and if so, at what rate and from which date and under which provision of the Act.
Submissions of the appellant
10. Learned counsel for the appellant took us to the facts of the case and submitted as follows:-
(i) The demand of duty has been set aside and therefore, the amount paid was never in the nature of duty. It is in the nature of amount not due and therefore, the appellant is entitled to interest on the said amount from the date of payment made to the Department.
(ii) It is settled principle in law that an assessee is entitled to compensation by way of interest on the delay in payment of amounts lawfully due to the appellant which were withheld wrongly and contrary to the law by the Department.
(iii) Reliance is placed on the decision of this Tribunal in M/s. Indus Towers Limited vs. Commissioner of Central 4 Excise, Central Goods and Service Tax, Gurugram in which interest was granted relying on the judgment of the Supreme Court in Sandvik Asia Limited vs. Commissioner 5 of Income Tax.
(iv) Interest may be sanctioned at the rate of 12% per annum.
Submissions of the Revenue
11. Learned authorized representative for the Revenue vehemently supported the impugned order and submitted as follows:
(i) The amounts deposited by the appellant were appropriated towards duty by the Commissioner.
(ii) This Tribunal had set aside the order of the Commissioner consequent upon which the refund arose.
(iii) Sanction of refund under section 11B was not challenged by the appellant and was accepted by the appellant. Therefore, it attained finality.
(iv) Consequently, interest can only be examined and paid under section 11BB of the Act and since the refund was sanctioned within 3 months, no interest was payable as per this section. Hence it has not been paid.
(v) The appeal may be dismissed and the impugned order may be upheld.
Findings
12. We have considered the submissions advanced by both sides and perused the records.
13. The contention of the learned counsel for the appellant that interest should be paid to it @ 12% is based on various decisions which were passed relying Sandvik Asia. The judgment in Sandvik Asia was doubted and the matter was referred to the larger bench of Supreme Court in a bunch of matters the lead matter being Commissioner of Income Tax, Gujarat versus Gujarat Fluoro 6 Chemicals. The Larger Bench of the Supreme Court clarified that Sandvik Asia order was passed in the peculiar facts of the case and an assessee can only claim the statutory interest and nothing else. The relevant portion of the Supreme Court judgment in Gujarat Fluoro Chemicals are reproduced below:-
“4. We would first throw light on the reasoning and the decision of this Court on the core issue in Sandvik case (supra). The only issue formulated by this Court for its consideration and decision was whether an assessee is entitled to be compensated by the Income Tax Department for the delay in paying interest on the refunded amount admittedly due to the assessee. This Court in the facts of the said case had noticed that there was delay of various periods, ranging from 12 to 17 years, in such payment by the Revenue. This Court had further referred to the several decisions which were brought to its notice and also referred to the relevant provisions of the Act which provide for refunds to be made by the Revenue when a superior forum directs refund of certain amounts to an assessee while disposing of an appeal, revision etc.
5. Since, there was an inordinate delay on the part of the Revenue in refunding the amount due to the assessee this Court had thought it fit that the assessee should be properly and adequately compensated and therefore in paragraph 51 of the judgment, the Court while compensating the assessee had directed the Revenue to pay a compensation by way of interest for two periods, namely; for the Assessment Years 1977-78, 1978-79, 1981-82, 1982-83 in a sum of Rs.40,84,906/- and interest @ 9% from 31.03.1986 to 27.03.1998 and in default, to pay the penal interest @ 15% per annum for the aforesaid period.
6. In our considered view, the aforesaid judgment has been misquoted and misinterpreted by the assessees and also by the Revenue. They are of the view that in Sandvik case (supra) this Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment. In other words, the interpretation placed is that the Revenue is obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period.
7. As we have already noticed, in Sandvik case (supra) this Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court had come to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same not an interest on interest.
8. Further it is brought to our notice that the Legislature by the Act No. 4 of 1988 (w.e.f. 01.04.1989) has inserted Section 244A to the Act which provides for interest on refunds under various contingencies. We clarify that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest.
9. With the aforesaid clarification we now refer back all the matters before a Two Judge Bench of this Court to consider each case independently and take an appropriate decision one way or the other”.
14. We, therefore, find that the claim of interest @ 12% by the appellant cannot be accepted. The settled legal position is that interest can be sanctioned as per the law and not beyond it. In the cases relied upon by the learned counsel, the decision of the larger bench of Supreme Court in Gujarat Fluoro Chemicals was not brought to the attention of the bench.
15. Interest, as is well known, is the time-value of money. If the assessee owes some tax and pays late, the State loses the time-value of money and vice versa. Interest payable on account of such delays are also stipulated by the Parliament in the law itself. The Act has provided for three different rates of interest and from different periods for
(a) duty short paid by the assessee (section 11AA);
(b) refund of duty made to the assessee (section 11BB); and
(c) refund of pre-deposit made by the assessee before filing the appeal (section 35FF).
16. Section 11AA provides for payment of interest on delayed payment of duty by the assessee. The rate of interest is stipulated in sub-section (2) of this section as ‘at such rate not below ten per cent and not exceeding thirty six percent per annum as the Central Government may notify’. It has to be paid from the date on which the duty becomes due upto the actual payment of the amount due.
17. Section 11BB of the Act provides for payment of interest to the claimant on delayed refunds. The rate of interest is stipulated in sub- section (2) of this section as ‘at such rate not below five per cent and not exceeding thirty percent per annum as the Central Government may notify’. It is payable from immediately after three months from the date of the application till the date of refund.
18. Section 35FF of the Act provides for interest on delayed refund of the amount deposited under section 35F of the Act (pre-deposit). The rate of interest is stipulated is ‘at such rate not below five per cent and not exceeding thirty six percent per annum as the Central Government may notify’. It has to be paid from the date of deposit upto the actual payment of the amount due.
19. What must be noted is that in all the three provisions a range of rates of interest have been given in the Act empowering the Central Government to notify the rate of interest within the range. The notifications issued by the Central Government are a delegated legislation. As is well known, legislature delegates powers to the Government to issue notifications, frame Rules, etc. and the Government is answerable to the Parliament. Every notification is placed by the Government with a note before each house of the Parliament which is then examined by the Committees of Subordinate legislation of each house to ensure if they are as per the intent of the legislature. It is for this reason, that the discretion of issuing notifications is not given to Courts or Tribunals who are independent and are not answerable to the Parliament.
20. Interest can be paid or recovered as per the law under the three sections which prescribe different rates of interest and for different periods for which interest. Such different rates of rates for different situations may not be consistent with general sense of equity but as held by his lordship J. Shah in Sales Tax Commissioner vs 7 Modi Sugar Mills “In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions’. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed it cannot imply anything which is not expressed. It cannot import provisions in the statutes so as to supply any assumed deficiency.” 8 Similarly, in Martand Dairy Farm vs Union of India, His Lordship Justice Krishna Iyer held “….. that after all law is not always logic and taxation considerations may stem from administrative experience and other factors of life and not artistic visualisation or neat logic and so the literal, though pedestrian, interpretation must prevail.”
21. We, therefore, have no manner of doubt that interest can be recovered from the assessee or paid to it only at the rate and from the date as per the law and not based on some view on fairness or equity. In Sandvik Asia, interest was ordered by the Supreme Court to be paid even on interest but the larger bench of Supreme Court has, in Gujarat Fluorochemicals held that Sandvik Asia order was issued under the peculiar facts of the case and interest should be paid only as per the statutory provisions. Therefore, the request of the learned counsel to pay interest at the rate of 12% deserves to be rejected.
22. We now proceed to examine this case within the framework of law. The first question to be examined is what was the nature of the amount deposited by the appellant during investigation. At that stage, there was no assessment nor any adjudication nor any confirmed demand based on which a demand of duty could be made. Amounts were paid through four cheques and a debit entry in the RG23A Part II register although there was no duty liability at all during the relevant period.
23. The nature of any amount paid to the exchequer can be easily ascertained from the way the amount has been accounted for. Although all amounts received by the Central Government are credited to the Consolidated Fund of India and all expenditure is made from it, various streams of Revenue which flow into the Consolidated Fund and various items of expenditure from it are clearly marked by accounting heads. Revenue heads of account determine how each rupee came into the Consolidated Fund of India. The expenditure heads of account indicate how each rupee was spent out of the Consolidated Fund of India. To determine the nature of any amount which has been paid into Consolidated Fund of India, one needs to merely look at the budgetary heads of accounts under which the amounts were deposited. Without an appropriate budgetary head, it is not possible to deposit any amount through a challan into the consolidated fund of India because the bank will require the budget head to be indicated. Some revenue budgetary heads are as follows:-
MAJOR / SUB-MAJOR HEADS MINOR HEADS 0020 Corporation Tax 101 Income Tax on Companies (1) 102 Surtax (2) 103 Surcharge (3) 104 Penalties (6) 105 Interest Recoveries 106 Tax on distributed profits of domestic companies 107 Tax on distributed income to unit holders (7) 500 Receipts Awaiting Transfer To Other Minor Heads (5) 800 Other Receipts (4) 0021 Taxes on Income Other 101 Income Tax on Union Emoluments than Corporation Tax including pensions (1) 102 Income Tax on other than Union Emoluments including pensions (2) 103 Surcharge (3) 104 Taxes on Income levied under State Laws (Sikkim) (6) 105 Penalties (8) 106 Interest recoveries 500 Receipts Awaiting Transfer To Other Minor Heads etc. (7) 800 Other receipts (4) 901 Share of net proceeds assigned to States (5) 0037 Customs (1) 101 Imports 102 Exports 103 Cesses on Exports (2) 104 Sale of Gold by Public auction (4) 105 Sale proceeds of confiscated goods (5) 106 Receipts of advance payments from assessees 800 Other Receipts (3) 0038 Union Excise Duties (1) 01 Shareable Duties 101 Basic Excise Duties 102 Auxiliary Duties of Excise 103 Additional Excise Duties on mineral products 104 Special Excise Duties 02 Duties assigned to 101 Additional Excise Duties in lieu of Sales States Tax 102 Excise duty on generation of power 03 Non-Shareable Duties 101 Regulatory Excise Duties 102 Auxiliary Duties of Excise (3) 103 Special Excise Duties (2) 104 Additional Excise Duties on Textiles and Textile Articles 105 Additional Excise Duties on TV Sets 106 Additional Excise Duties on indigenous motor spirit (7) 107 Additional Excise Duty on High Speed Diesel Oil (7) 800 Other Duties 04 Cesses on Commodities A Minor head for each Commodity (4) 60 Other Receipts’ 101 Sale proceeds of confiscated goods (6) 500 Receipts awaiting transfers to other minor heads etc (5) 800 Other Receipts
24. In this case, the appellant paid the amount through cheques the amounts towards future duty liability. These were credited to the excise duty head of account.
25. The next question to be answered is whether every rupee which has been deposited under the head of excise duty will automatically become duty or something more is required for the amount to be the duty. To examine this, we need to examine as to what constitutes the tax or duty and when it is owed and when it has to be actually paid. As Justice GP Singh explained in Principles of Statutory 9 Interpretation, there are three stages in the imposition of a tax, viz., (1) the declaration of liability in respect of persons or property;
(2) assessment of tax that quantifies the sum which the person liable has to pay; and (3) methods of recovery if the person taxed does not 10 voluntarily pay..
26. Thus, for something to be a tax it must be assessed and it can be recovered if the person taxed does not voluntarily pay when it is due. It must be remembered that the tax does not automatically become due once the taxable event takes place. Occurrence of the taxable event triggers the charge of tax. For sales tax, the act of selling is the taxable event but sales tax does not become due immediately after the sale. It has to be paid periodically (say, monthly) as specified in the law. Similarly, customs duty does not become due the moment the goods enter India from outside. Customs duty has to be paid at any time before the goods are cleared for home consumption either from the customs station or from the warehouse. Likewise, excise duty is levied on the act of manufacture but it becomes payable only when the goods are removed from theth factory premises and has to be paid by the 5 of the following month. Tax officials cannot recover any tax from the assessee unless the due date for payment passed and the assessee did not pay the tax voluntarily.
27. For a tax or duty to become due, it should, in the first place, be assessed. We now proceed to examine the provisions relating to the assessment of excise duty.
28. Assessment is the process of determining the amount of duty to be paid on the goods manufactured and cleared. This is done by the assessee through self-assessment while filing the returns. If the proper officer finds that duty has been not paid or short paid, he can modify the assessment by issuing a notice under section 11A of the Act and passing an order in pursuance of that notice. Until such adjudication order is passed confirming the duty which, in this case, happened on 24.3.2014, there was no tax liability.
29. In this case, the amounts were deposited in 2011 and 2012 when there was neither any assessed duty nor any confirmed demand of duty. No duty was levied or was demanded under the Act at that stage. There was also no adjudication order which required the appellant to pay any additional amount as duty. According to the learned counsel, under pressure from the officers investigating the matter, the appellant had paid this amount.
30. Thus, this was a situation where an amount was deposited into the Consolidated Fund of India under the head of excise duty but there was no duty liability at all. Yet, at the behest of the investigating officers the appellant had deposited the amount.
31. The question which now arises is at what stage will such an amount become duty if it was NOT duty at the time it was deposited because there was no assessment or a modification of an earlier assessment. We now need to examine the cases when amounts are deposited under the head of account of Excise Duty or some other tax or duty when there was no assessed duty or tax.
32. Under the erstwhile provisions of the Central Excise Act, 1944, 11 the assessee was required to maintain a Personal Ledger Account, deposit duties through challans and take credit of the amounts deposited by it in the PLA and then debit the excise duty payable on each invoice from the balance in the PLA. Sometimes, after depositing a large amount of money in the PLA the assessee would realize that he does not need such large balance to pay the duty due. He would simply ask the officer for a refund of the amount deposited in the PLA and the officer would refund it. This refund was not a refund of duty under section 11B of the Central Excise Act, 1944 because what was being refunded was not duty but only an amount deposited and lying in balance in the PLA. There was no special provision under which such amount lying in balance in the PLA could be refunded. It was simply an amount paid by the assessee in anticipation of future duty liability and since the assessee felt that no duty liability may arise, he would simply ask for it back. Such refunds were never considered refunds of excise duty.
33. The Central Goods and Services Tax Act, 2017 also requires the assessee to maintain an Electronic Cash Ledger and this Act specifically provides for refund of any excess amount lying in electronic cash ledger. Section 49 of the CGST Act requires each assessee to maintain an electronic cash ledger and every amount which is paid as GST through challans is credited to this ledger and the amounts due as GST are debited from it. Sections 49(6) and 54 of the CGST Act specifically provide for an assessee to seek refund of balance lying in the electronic cash ledger after paying tax. This is an amount deposited in the exchequer under the CGST head of account but it was not CGST due and hence the assessee can anytime simply claim refund. The relevant provisions of CGST Act are reproduced below:
“Section 49. Payment of tax, interest, penalty and other amounts.-
(1) Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit cards or National Electronic Fund Transfer or Real Time Gross Settlement or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed.
(2) The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41, to be maintained in such manner as may be prescribed.
****
(6) The balance in the electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fee or any other amount payable under this Act or the rules made thereunder may be refunded in accordance with the provisions of section 54. ****
Section 54. Refund of tax.-
(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:
Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in such form and manner as may be prescribed.
****
34. What is clear from the above is that for any amount to be a tax or duty, three things are essential:
(i) it should have been deposited under that budget head;
(ii) the amount should have been paid against an assessment or modification of an assessment of duty or tax; and
(iii) Such amount of duty or tax should be due at that time.
35. The appellant who had deposited the amounts under the head of excise duty during investigation at the behest of the officers could have, at that stage or immediately thereafter sought refund of that amount because at that time there was no duty liability at all and the amount which was deposited was not appropriated towards any duty due from an assessment or an adjudication order. The amount was neither assessed as duty, let alone such amount being due. It was akin to the balances lying in the erstwhile PLA of Central Excise or the balances lying in Electronic Cash Ledger under GST.
36. It would also be necessary to examine as to when the amount of duty, fine or penalty determined or imposed under an adjudication order would become due because unless it is due, the department cannot recover it. Section 35B of the Act provides for an appeal against any order of the Commissioner. Section 35F provides for pre- deposit and if the pre-deposit is made and an appeal is filed, recovery of rest of the duty confirmed by the Commissioner stands stayed. Before 2014, Section 35F required the entire duty to be deposited with the Tribunal granting full or partial stay orders. From 2014, Section 35F of the Act fixed the amount of pre-deposit and as a matter of practice and as per the CBEC’s instructions, the remaining amount is not recovered till the decision of the appeal by this Tribunal.
37. Therefore, once the pre-deposit is made and an appeal is filed, the rest of the amount will NOT be due and the departmental officers cannot recover it. Therefore, the amount deposited by the appellant in this case was not due even after the adjudication order was passed because the appellant had filed an appeal before this Tribunal.
38. Thus, the amount deposited by the appellant during investigation should not have been appropriated by the Commissioner even in the adjudication order. Effectively, he proceeded to recover the amounts under section 11 of the Act even before such a recovery was due.
39. Another question to be considered is whether the officers could not ask the assessee during investigation to deposit some amount under the head of account of excise duties in anticipation of future liabilities that may arise consequent upon the investigation and the adjudication. The answer is NO. Wherever, the Parliament intended to provide for deposit of amounts in advance to cover anticipated taxes, the statute provides for it. Tax Deduction at Source, Advance Tax, etc. under the Income Tax Act are examples where the law provided for collection of tax before assessment in anticipation of future tax liabilities.
40. Central Excise Act does not empower any officer to compel nor is there any obligation or any assessee to pay any amount in anticipation of any liability which may arise on investigation and adjudication. Duties have to be paid only after assessment or an adjudication order and after they become due.
41. This Tribunal can admit an appeal only after the appellant makes a pre-deposit under section 35F. It has been the practice to accept any amounts paid during investigation or at any time thereafter as the pre-deposit and no separate pre-deposit is required from the appellant. Even when the appeal was admitted, we do not find that there was any order to retain only 10% of the duty confirmed in the impugned order and refund the rest. Thus, the entire amount deposited by the appellant during the investigation in this case was treated as pre-deposit under section 35F although the mandatory deposit is only 10%. Accordingly, interest provisions under section 35FF would apply.
42. Learned authorised representative for the Revenue submitted that the refund sought as refund of duty and therefore, must be dealt with section 11B and section 11BB of the Act. We find from the records that the appellant had not asked for refund under section 11B. It only sent a letter with a copy of the order of this Tribunal and sought the consequential refund. Even if appellant had filed the application for refund of duty, it does not change the nature of the amount deposited which was not excise duty at all. The Supreme Court held in Tata Refractories and Another versus Sales Tax 13 Officer and Others that the amount deposited would not became sales tax even though the application for refund was filed under Orissa Sales Tax Act.
43. To sum up:
(i) Taxing statutes specify the taxable event, the rate of tax, the measure of tax, the person or property chargeable with the tax, the time when tax will become due and also provide for mechanisms through which the tax can be recovered if they are not paid voluntarily when they are due.
(ii) Excise duties are chargeable on manufacture and clearanceth of the goods and have to be paid by the 5 of the following month as per the assessment. If the assessment is modified through any adjudication order, it has to be paid after the adjudication order. If the adjudication order is appealed against after making the mandatory pre-deposit under section 35F, the amount has to be paid only after the decision of this Tribunal or Court.
(iii) The Act does not empower any officer to ask any assessee to pay any amount to cover any future liabilities that may arise after investigation and adjudication.
(iv) Any amount paid under any head including the head of duty of excise during investigation or at any stage before the adjudication order is only a deposit. The person who so deposited the amount can immediately seek refund of the amount deposited because there is no assessed liability and the officer is bound to refund the amount. It is not necessary to establish that the amount was deposited under pressure or duress in order to seek refund. Even if it was paid under misunderstanding, the person can seek refund because the amount so paid was not against any assessed liability. If the refund is rejected, the person can avail appellate remedies.
(v) In cases where the amount deposited during investigation or at any stage before filing the appeal is in excess of the mandatory pre-deposit and the excess amount has not been refunded, the entire amount so deposited has to be treated as pre-deposit.
(vi) In the facts of the case, the entire amount deposited by the appellant during the investigation should be treated as deposit under section 35F of the Act.
44. The appeal is partly allowed and the impugned order is modified to treat the amount deposited by the appellant as deposit under section 35F of the Act. The amount has already been refunded. Interest must be paid to the appellant as per section 35FF of the Act at the applicable rate from the date of deposit till the date of refund.
(Order pronounced in open court on 15/10/2026.)
Notes:
1 the appellant
2 SCN
3 Act
4 Service Tax appeal 60744 of 2023
5 2007 (8) STR 193 (SC)
6 2013(296) ELT 433 (SC)
7 AIR 1961 SC 1047
8 AIR 1975 SC1492
9 G.P. Singh, Principles of Statutory Interpretation, 15th Edition page 615
10 Ibid, citing Kalwa Dewdattam vs UOI, AIR 1964 SCC 880,p883; and Harshad Mehta v Custodian AIR1998SC 2291,p2298
11 PLA
12 CGST Act
13 (2003) Supreme Court cases 65
