CESTAT Grants 12% Interest on Redemption Fine Refund from Deposit Till Payment

Hindustan Distributors Vs Commissioner of Customs (CESTAT Chandigarh)

Summary: The Chandigarh Regional Bench of the Customs, Excise and Service Tax Appellate Tribunal allowed both appeals filed by M/s Hindustan Distributors and held that the appellant was entitled to interest at 12% per annum from the date of the revenue deposit until actual payment of the refund. The appeals concerned interest on amounts deposited as redemption fine for redeeming imported goods.

The two appeals arose from separate orders of the Commissioner (Appeals), Ludhiana. The issue in both matters was identical, and the Tribunal therefore treated Customs Appeal No. 60490 of 2025 as the lead case. The refund amounts involved were Rs. 18,00,000/- in Appeal No. C/60490/2025 and Rs. 27,00,000/- in Appeal No. C/60519/2025.

The appellant was a proprietorship firm engaged in importing iron and steel products falling under the freely importable category. The Director General of Foreign Trade, through Notification No. 38/2015-2020 dated 05.02.2016, imposed a Minimum Import Price restriction. The appellant filed three Bills of Entry on 26.02.2016 and responded to an EDI query on 01.03.2016 by contending that the restrictive notification did not apply.

Following the initial adjudication, the appellant appealed before the Commissioner (Appeals). By Order-in-Appeal dated 27.07.2023, the confiscation and redemption fine of Rs. 18 lakh were set aside, although the penalty was upheld. The appellant consequently filed a refund claim on 23.08.2023 for the Rs. 18 lakh redemption fine. The respondent sanctioned the refund by Order-in-Original dated 30.01.2024 but rejected interest under Section 27A of the Customs Act, 1962, reasoning that the refund had been sanctioned within three months from the application.

The appellant contended that Section 27A applied to refunds of duty or interest, whereas the present matter concerned a redemption fine that was never legally payable. According to the appellant, the Department had retained money which was ultimately found not to be payable, and interest was therefore compensatory for the period during which the Department enjoyed the appellant’s funds. The appellant relied upon Commissioner of C.Ex. Chennai-II Vs. Ucal Fuel System Ltd. and M/s Parle Agro Pvt. Ltd. Vs. Commissioner of CGST, Noida.

The Department defended the impugned order by submitting that the Customs Act contained no provision for interest except Section 27A and that interest under that provision became payable only where a refund was not granted within three months from receipt of the refund application. The Department relied upon M/s HLG Trading Vs. Principal Commissioner of Customs, M/s Ajay Industrial Corporation Ltd. Vs. Deputy Commissioner of Customs, M/s Union of India Vs. Orient Enterprises, Commissioner of Customs (Preventive) Vs. Daleep Kumar Verma and India Carbon Ltd. Vs. State of Assam.

The Tribunal identified the sole issue as whether interest could be granted on the refund of a redemption fine when Section 27A did not specifically provide for such interest. It noted that the Commissioner (Appeals) had also denied interest because the appellant had not specified the statutory provision under which interest was claimed.

The Tribunal relied particularly upon the Division Bench decision in M/s Parle Agro Pvt. Ltd., where the provisions of Section 11B of the Central Excise Act and Section 27A of the Customs Act were considered pari materia. In that decision, the Tribunal had distinguished a refund of duty from refund of a revenue deposit and, relying upon Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Riba Textiles Pvt. Ltd., held that interest could be granted on a revenue deposit. The Tribunal had considered the interest provisions under Sections 11AA, 11BB and 11DD of the Central Excise Act for guidance and granted interest at 12% per annum from the date of deposit until payment. That decision was stated to have been upheld by the Allahabad High Court in 2025 (37) Centax 217.

The Tribunal further relied upon the Allahabad High Court decision in M/s Pace Marketing Specialties Vs. Commissioner of Central Excise, which followed Sandvik Asia Ltd. and granted interest at 12% per annum on amounts deposited during investigation and adjudication. It also relied upon M/s Riba Textiles, where 12% interest was granted on amounts deposited during investigation and at the stage of entertaining the stay application. The Punjab and Haryana High Court had upheld that decision and affirmed entitlement to 12% annual interest on delayed refunds from the date of deposit until realization.

The Tribunal distinguished the decisions relied upon by the Department because those cases concerned grant of interest under Section 27A of the Customs Act, whereas the present appeals involved a revenue deposit which the appellant was compelled to pay to redeem the goods. The Tribunal held that interest was compensatory in nature and that the Department was liable to pay interest for the period during which the amount remained deposited with it.

Accordingly, relying upon M/s Parle Agro Pvt. Ltd., as upheld by the Allahabad High Court, and M/s Riba Textiles Ltd., the Tribunal set aside the impugned orders and held that the appellant was entitled to interest at 12% per annum from the date of the revenue deposit until actual payment. Both appeals were allowed.

Cases Discussed

• Commissioner of C.Ex. Chennai-II Vs. Ucal Fuel System Ltd. – 2014 (306) ELT 26 (Mad)
• M/s Parle Agro Pvt. Ltd. Vs. Commissioner of CGST, Noida – 2022 (380) ELT 219 (Tri.-All.)
• Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune – 2007 (8) S.T.R. 193 (S.C.)
• M/s Riba Textiles Pvt. Ltd., Village Chidana Vs. Commissioner of Central Excise and ST, Panchkula – 2020-TIOL-932-CESTAT-CHD; Commissioner of Central Excise, Panchkula Vs. M/s Riba Textiles Limited – CEA No. 8 of 2022, decided on 14.03.2022
• M/s Pace Marketing Specialties Vs. Commissioner of Central Excise – 2011 (274) E.L.T. 13 (All.)
• M/s HLG Trading Vs. Principal Commissioner of Customs, Chennai – 2026 (38) Centax 158 (Mad)
• M/s Ajay Industrial Corporation Ltd. Vs. Deputy Commissioner of Customs, CRC-I, JNCH, Nhava Sheva, Raigad – 2024 Centax 396 (Bom.)
• M/s Union of India Vs. Orient Enterprises – 1998 (99) ELT 193 (S.C.)
• Commissioner of Customs (Preventive) Vs. Daleep Kumar Verma – (2024) 24 Centax 397 (Meghalaya)
• India Carbon Ltd. Vs. State of Assam – 1997 AIR Supreme Court 3054; 1997 (6) SCC 479

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

These two appeals are directed against the two different impugned orders passed by the Commissioner (Appeals), CGST, Ludhiana, whereby the learned Commissioner (Appeals) has upheld the Order-in-Original and rejected the appeal of the appellant. As the issue involved in both the appeals is regarding the grant of interest on redemption fine deposited by the appellant. The details of both the appeals are given here in below:

Since the issue involved in both the appeals are identical, therefore for the sake of convenience, I take the facts of the appeal No. C/60490/2025 as a lead case.

2. Briefly stated, the facts of the case are that the appellant is a proprietorship firm engaged in importing iron and steel products which fell under the ‘freely importable’ category. The Director General of Foreign Trade (DGFT), vide Notification No. 38/2015-2020 dated 05.02.2016, suddenly imposed a Minimum Import Price (MIP) restriction. The appellant filed Bill of Entries bearing Nos. 4386116, 4386114, and 4386117 on 26.02.2016. On the same day, a query was raised under the EDI system. The appellant replied on 01.03.2016, submitting that the restrictive Notification should not apply to their case. Aggrieved by the initial adjudication, the appellant filed an appeal before the Commissioner (Appeals), who vide Order-in-Appeal dated 27.07.2023, set aside the confiscation and redemption fine of Rs. 18 lakh, but upheld the penalty. Consequently, the appellant filed a refund claim for the Rs. 18 lakh on 23.08.2023. The respondent, vide Order-in-Original dated 30.01.2024, sanctioned the refund of Rs. 18 lakh but rejected the claim for interest under Section 27A of the Customs Act, holding that interest is not payable as the matter was sub-judice before the Commissioner (Appeals) and the refund was sanctioned within three months from the date of the application.. Aggrieved by the said order, the appellant filed the appeal before the Commissioner (Appeals) and the Commissioner (Appeals) dismissed the same. Hence, the present appeal.

3. Heard both the parties and perused the material on record.

4. The learned Counsel for the appellant submits that the impugned order is not sustainable in law and is liable to be set aside as the same has been passed without properly appreciating the facts, the law, and binding judicial precedents. He further submits that in the present case, the department took the view that the goods were liable to be confiscated and therefore imposed a redemption fine under Section 125 of the Customs Act, 1962 along with a penalty, and the appellant got the goods redeemed on payment of such amounts. Thereafter, they contested the confiscation, and the redemption fine was set aside by the learned Commissioner (Appeals) in respect of the three bills of entry, and subsequently, the penalty was also set aside by the CESTAT. He further submits that after the decision of the CESTAT, neither the confiscation was sustainable nor any fine was payable, and whatever amount was paid was never legally due.

4.1 The Department has retained the said amount for such a long period of time which was never payable, and therefore, the appellant is entitled to interest for such retention period. He further submits that the respondent has wrongfully invoked the provisions of Section 27 and Section 27A of the Customs Act, 1962, which are applicable only in the case of refund of duty or interest. Whereas, the present case relates to the refund of a redemption fine which was never legally payable, and therefore, the denial of interest by relying on Section 27A is wholly unsustainable in law. He further submits that the interest compensatory in nature and the Department is liable to pay interest for the period during which the Department has enjoyed the money of the appellant. In support of his submissions, he relied upon the following decisions:

• Commissioner of C.Ex. Chennai-II Vs. Ucal Fuel System Ltd. – 2014 (306) ELT 26 (Mad)
• M/s Parle Agro Pvt. Ltd. vs. Commissioner of CGST, Noida – 2022 (380) ELT 219 (Tri.-All).

5. On the other hand, the learned Special Counsel appearing on behalf of the respondent has vehemently argued and defended the impugned order on the ground that the Department has complied with the requirements of Section 27A of the Customs Act, 1962. He submitted that the amount was refunded within the stipulated period without interest because the appellant was not entitled to interest on the redemption fine. He further submitted that there is no provision in the Customs Act for the grant of interest except under Section 27A of the Act, according to which interest becomes payable only if the refund is not granted within a period of three months from the date of receipt of the refund application. In support of his submissions, he relied upon the following decisions:

• M/s HLG Trading Vs. Principal Commissioner of Customs, Chennai -2026 (38) Centax 158 (Mad).
• M/s Ajay Industrial Corporation Ltd. Vs. Deputy Commissioner of Customs, CRC-I, JNCH, Nhava Sheva, Raigad (2024) Centax 396 (Bom.)
• M/s Union of India Vs. Orient Enterprises 1998 (99) ELT 193 (S.C.)
• Commissioner of Customs (Preventive) Vs. Daleep Kumar Verma (2024) 24 Centax 397 (Meghalaya).
• India Carbon Ltd. vs. State of Assam (SC) 1997 AIR Supreme Court 3054 1997 (6) SCC 479.

6. I have considered the submissions of both parties and perused the material on record. The sole issue involved in both appeals relates to the non-sanction of interest on the refund amount, which was denied primarily on the ground that there is no specific provision for the grant of interest on the refund of a redemption fine under Section 27A of the Customs Act, 1962. Further, I find that the learned Commissioner (Appeals) has denied the interest on the ground that the appellant failed to mention the specific statutory provision under which they are entitled to interest on the refund of a redemption fine. This issue has been considered by various Benches of this Tribunal. Notably, the Division Bench of CESTAT, Allahabad, in the case of M/s Parle Agro Pvt. Ltd., dealt with an identical issue under the Central Excise Act, 1944. The provisions of Section 11B of the Central Excise Act and Section 27A of the Customs Act, 1962, are pari materia. The Division Bench of the Tribunal, after examining in detail the submissions of both sides and relying upon the decisions of the Hon’ble Apex Court in the case of M/s Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune – 2007 (8) S.T.R. 193 (S.C.) and M/s Riba Textiles Pvt. Ltd., Village Chidana Vs. Commissioner of Central Excise and ST, Panchkula – 2020-TIOL-932-CESTAT-CHD, has observed as under:

30. In the present case, the provisions of Section 11B of the Excise Act would not be applicable. This is for the reason that the appellant was not claiming refund of duty. The applicant, as noticed above, had claimed refund of the revenue deposit. Such a finding has also been clearly recorded by the Tribunal in the order dated 31-1-2017, which order has attained finality.

31. Section 11D of the Excise Aet deals with duties of excise collected from the buyer to be deposited with Central Government. It provides that every person who is liable to pay duty and has collected any amount in excess of the duty assessed from the buyer of such goods In any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government.

32. Section 11DD of the Excise Act deals with interest on the amount collected in excess of the duty. It provides that where an amount has been collected in excess of the duty from the buyer of such goods, the person who is liable to pay such amount shall, in addition to the amount, be liable to pay Interest at such rate not below ten per cent., and not exceeding thirty-six per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette.

33. There is no provision in the Excise Act, which deals with refund of revenue deposit and so rate of interest has not been prescribed, when revenue deposit is required to be refunded.

34. to be able to have some guidance regarding the rate of interest in case revenue deposit has to be refunded, the aid of the interest provisions under Section 11AA (which deals with interest on delayed payment of duty), Section 11BB (which deals with interest on delayed refunds under Section 11B(2) and Section 11DD (which deals with interest on the amount collected in excess of the duty) can be taken.

Further, the Tribunal has also held as under:

39. In this connection reference can also made to the decision of the Allahabad High Court in Pace Marketing Specialties and Ebiz. Com Private Limited, wherein after making reference to the decision of the Supreme Court in Sandvik Asia Lid., the High Court granted Interest at the rate of 12% per annum in matters relating to refund of amount deposited during investigation and adjudication.

40. In Riba Textiles, the Tribunal also granted interest at the rate of 12% on refund of amount deposited during investigation and ar the time of entertaining the stay application.

41. In view for the aforesald decisions, and the fact that the rate of interest varies from 6% to 18% in the aforesaid Notifications issued under Sections 11AA, 11BB, 11DD and 11AB of the Excise Act, the grant of interest @ 12% per annum seems to be appropriate.

42. Thus, for the reason stated above, Excise Appeal No. 70628 of 2019 is allowed and the order dated 28-5-2019, passed by the Commissioner (Appeals) is modified to the extent that interest shall be granted to the appellant @ 12% instead of @6% from the date of deposit till the date of payment. Excise Appeal No. 70674 of 2019 filed by the Principal Commissioner for setting aside the order dated 28-5-2019, passed by the Commissioner (Appeals) is dismissed.

This decision of the Tribunal has been upheld by the Allahabad High Court reported in 2025 (37) Centax 217.

7. Further, I find that the Allahabad High Court in the case of M/s Pace Marketing Specialties Vs. Commissioner of Central Excise – 2011 (274) E.L.T. 13 (All.) followed the decision of the Hon’ble Apex Court in the case of M/s Sandvik Asia Ltd. (Cited Supra) and granted interest @ 12% per annum in matters relating to refund of amount deposited during investigation and adjudication.

8. Similarly, this Tribunal in the case of M/s Riba Textile (cited Supra) granted 12% interest on the amount deposited during investigation and at the time of entertaining the stay application. The Punjab and Haryana High Court upheld the tribunal’s decision in Commissioner of Central Excise, Panchkula Vs. M/s Riba Textiles Limited (CEA No. 8 of 2022, decided on March 14, 2022), affirming entitlement to 12% annual interest on delayed refunds from the date of deposit until realization. This judgment serves as a binding precedent for granting 12% per annum interest on delayed refunds. Further, I find that the decision relied in the impugned order and by the Special counsel (Cited Supra) are not applicable to the facts and circumstances of the case because all those decisions pertains to grant of interest under Section 27A of the Customs Act 1962, whereas the present appeals, it is the revenue deposit which the appellant was compelled to pay in order to redeem the goods. Since, the interest is compensatory in nature, therefore, the Department is liable to pay the interest on the said amount for the period, the amount remained deposited with the Department.

9. In view of the facts and circumstances and relying upon the judgment of Division Bench of the Tribunal in the case of M/s Parle Agro Pvt. Ltd. (cited Supra) upheld by the Allahabad High Court and M/s Riba Textiles Ltd. (Cited Supra), I set aside the impugned order and allowed the appeals of the appellant and hold that the appellant is entitled to interest @ 12% from the date of the revenue deposit till the actual payment.

Both the appeals are accordingly allowed.

(Order pronounced in the open court on 21.08.2026)