CESTAT Kolkata Grants 12% Interest on Excise Investigation Deposit from Date of Deposit

Bengal Hammer Industries Private Limited Vs Commissioner of Central Tax (CESTAT Kolkata)

Summary: The appellant, M/s. Bengal Hammer Industries Private Limited, was engaged in manufacturing operations and was registered under the Central Excise Act, 1944. During an investigation by the Directorate General of Anti-Evasion (C.Ex.), Calcutta Zonal Unit, the appellant deposited an aggregate amount of Rs.50,00,000/- during July 1996 to February 1997 in connection with an allegation concerning incorrect availment of MODVAT credit. A Show Cause Notice was subsequently issued on 02.05.2000 proposing recovery of Rs.78,91,213/-. After successive adjudication and appellate proceedings, the Tribunal, vide Final Order Nos.75049-75050 of 2020 dated 03.01.2020, set aside the demand and allowed the appeals with consequential benefit. The deposited amount of Rs.50,00,000/- was thereafter refunded on 17.06.2020 without interest. The Commissioner (Appeals) denied interest on the reasoning that the refund claim was filed on 25.02.2020 and the refund was sanctioned within three months, applying Section 11BB of the Central Excise Act, 1944. Before the Tribunal, the appellant contended that the amount was a revenue/investigation deposit and not excise duty, that Sections 11B and 11BB were therefore inapplicable, and that interest at 12% per annum was payable from the respective dates of deposit until refund. The Revenue contended that the refund was made within the statutory period and that the deposit could not be treated as a pre-deposit under Section 35F so as to attract Section 35FF. The Tribunal considered the factual history and the cited decisions concerning interest on investigation-stage deposits and refunds. It held that, after the demand had been set aside and no further challenge by the Revenue was shown, the amounts deposited during investigation lost the character of Excise Duty and remained amounts deposited by the appellant. The Tribunal further held that the absence of a specific statutory provision could not be relied upon to deny interest where the Revenue had retained the appellant’s money without legal entitlement. Following the authorities discussed in the order, the Tribunal held that the appellant was entitled to interest at 12% per annum from the respective dates of deposit until the date of refund. The impugned order was accordingly set aside and the appeal was allowed. The Tribunal also directed that the interest be calculated and paid within eight weeks from receipt of the order. Cases Discussed:

• Ranbaxy Laboratories Ltd. v. Union of India [2012 (27) S.T.R. 193 (S.C.)]
• Sandvik Asia Ltd. v. Commissioner of Income Tax-I, Pune [2007 (8) S.T.R. 193 (S.C.)]
• Parle Agro Pvt. Ltd. v. Commissioner, C.G.S.T., Noida [2022 (380) E.L.T. 219 (Tri.-All.)]
• Riba Textiles Ltd. v. Commissioner of Central Excise and Service Tax, Panchkula [2022 (62) G.S.T.L. 136 (P & H)]
• Churchit International v. Commissioner of Customs (Export), New Delhi [Final Order No. 58537 of 2024]
• Rajendra Kumar Jain v. Commissioner of Customs (Port), Kolkata & Others
• Green Valley Industries
• Commissioner, C.G.S.T. and Central Excise, Indore v. Indore Treasure Market City Pvt. Ltd.

FULL TEXT OF THE ORDER OF CESTAT KOLKATA

The appellant, M/s. Bengal Hammer Industries Private Limited was a registered assessee under the Central Excise Act, 1944 engaged in manufacturing operations and duly registered under the applicable provisions. 2. During the Financial Year 1996–97, the Directorate General of Anti-Evasion (C.Ex.), Calcutta Zonal Unit, conducted an investigation against the appellant, raising an allegation of incorrect availment of MODVAT credit under the provisions of the Act. During the course of the said investigation proceedings, and prior to the issuance of any Show Cause Notice, the appellant had deposited a sum of Rs. 50,00,000/- (Rupees Fifty Lakhs only). 3. On the ground that the appellant is not eligible for the MODVAT Credit to the extent of Rs.78,91,213/-, taken during the period from 01.04.1995 to 28.01.1996, a Show Cause Notice came to be issued on 02.05.2000. Vide Order-in-Original dated 28.01.2004, the adjudicating authority had confirmed the demand. Being aggrieved, the appellant filed their appeal before the Tribunal, whereupon the matter was remanded to the adjudicating authority. Thereafter, vide Order-in-Original dated 04.01.2010, the demand came to be confirmed by the adjudicating authority. Against the said order, the appellant filed an appeal before the Tribunal, whereafter, vide Final Order Nos. 75049–75050 of 2020 dated 03.01.2020, the Tribunal set aside the demand and allowed the appeals. 3.1. Consequent to this Final Order, the appellant sought refund of the amount deposited during the course of investigation. The actual amount, of deposit of Rs.50,00,000/- made by the appellant, has been refunded vide Order-in-Original No. 02/R/Refund/Bally-I/2020-2021 dated 17.06.2020. 3.2. Being aggrieved by the fact no interest was granted for this amount of Rs.50,00,000/-, the appellant filed their appeal before the Commissioner (Appeals), which came to be dismissed by him vide the impugned order dated 18.02.2021, on the ground that interest is payable only for the delayed period, i.e., after the expiry of 3 months from the date of filing of the refund claim whereas in this case, the refund was granted within the specified time. 4. Being aggrieved, the appellant is before the Tribunal. 5. The appellant’s Miscellaneous Petition for Early Hearing was dismissed by this Bench on 19.04.2024. The appellant challenged same before the Hon’ble Calcutta High Court vide revisional application under C.O. No.2581 of 2024. The Hon’ble Calcutta High Court vide its Order dated 28.01.2026, directed the Tribunal to dispose of the appeal expeditiously, preferably within three months from the date of communication of the said order. The appellant communicated the same to the Registry on 09.04.2026. Adhering to the directions of the Hon’ble Calcutta High Court, the appeal was taken up on 12.05.2026 for Hearing. The Orders were reserved on that date. However, as the Member (Technical) was on Tour and was also availing Medical Leaves, the Order could not be pronounced before he retired on 02.08.2026. Therefore, the Appeal has been re-listed on 02.09.2026 and the matter was heard from both the sides. 6. The Ld. Chartered Accountant appearing on behalf of the appellant gives the chronological details as per the following table: –

6.1. He submits that issue in the present appeal is narrow and well-defined. It is pointed out that the refund of the principal sum of Rs. 50,00,000/- is not in dispute and that the same has already been received by the appellant pursuant to the Order-in- Original dated 17th June, 2020. It is submitted that the sole questions for adjudication before this Tribunal are:

(i) From what date is the appellant entitled to interest on the deposited amount of Rs. 50,00,000/-; and

(ii) At what rate is such interest payable.

6.2. The appellant respectfully submits that they are entitled to interest at the rate of 12% per annum from the respective date of each deposit till the date of actual refund, as has consistently been held by this Tribunal and the Hon’ble Supreme Court of India in a catena of decisions, including the decision of this very Bench in M/s. Green Valley Industries Limited vs. Commissioner of CGST & CX, Shillong Commissionerate [Excise Appeal No. 75724 of 2021, Final Order No. 75189/2022 dated 11th April, 2022]. 6.3. The appellant further draws attention to the fact that Section 35FF did not exist in the statute prior to its introduction on 10th May, 2008; that during this period, there was no statutory provision governing the rate or commencement of interest on refund of amounts deposited during investigation or adjudication proceedings. It is submitted that in the absence of such provision, the Hon’ble Supreme Court of India, in Commissioner of Central Excise v. ITC Limited (decided on 2nd December, 2004), recognised the right of an assessee to receive interest at 12% per annum on amounts wrongly retained by the State from the date of such retention. 6.4. It has been submitted by the appellant that the Commissioner (Appeals) has committed a fundamental error of law by applying Section 11BB — which is the rate provision under the pre-amendment Section 35FF — to the appellant’s deposits of 1996– 97; that the Impugned Order is accordingly unsustainable in law and is liable to be set aside. 6.5. The appellant further submits that the impugned order proceeds on the basis that interest is payable under Section 11BB of the Act, which provides for interest on delayed refund of duty ordered under Section 11B(2); however, this approach is wholly erroneous in law, since the pre-deposit made during investigation is not a payment of duty; that it is a deposit of a sum held by the Department in a custodial capacity, pending adjudication. It is mentioned that the Board’s own Circular No. 984/08/2014-CX dated 16th September, 2014 expressly clarifies at paragraph 5.2 thereof: =

“Pre-deposit for filing appeal is not payment of duty. Hence, refund of pre-deposit need not be subjected to the process of refund of duty under Section 11B of the Central Excise Act, 1944 or Section 27 of the Customs Act, 1962.”

6.6. It is the case of the appellant that the statutory scheme under the Act is clear – Section 11B deals with claims for refund of duty and interest paid on such duty; that Section 11BB provides for interest on amounts that are ordered to be refunded under Section 11B(2) but are not refunded within three months of the application. It is submitted that since the present case does not involve a claim for refund of duty, but a claim for refund of a pre-deposit / investigation deposit, the provisions of Section 11B are altogether inapplicable; it follows, as a necessary corollary, that Section 11BB is equally inapplicable. 6.7. In this regard, the appellant placed reliance on the decision of the Tribunal in M/s. Parle Agro Pvt. Ltd. vs. Commissioner, CGST, Noida [Excise Appeal No. 70628 of 2019, Final Order No. 70180-70181/2021 dated 25th May, 2021] wherein it has been specifically held, at paragraphs 30 and 33, that Section 11B has no application to refund of revenue deposits, and that “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.”; in the absence of any applicable statutory rate, the Tribunal applied the rate of 12% per annum, being the mean of the rates under the various applicable notifications. 6.8. Further, in addition to M/s. Green Valley Industries Limited (supra), the following decisions of the Hon’ble Supreme Court, the Hon’ble High Courts, and various Benches of this Tribunal have been relied upon by the appellant in support of its claim for interest at 12% per annum from the date of each deposit:

(i) Sandvik Asia Ltd. vs. Commissioner of Income Tax- I, Pune [2006 (196) ELT 257 (SC)]: The Hon’ble Supreme Court held that interest is payable on amounts retained by the State to which it has no legitimate claim, recognising the foundational right of an assessee to compensation for the period of retention of amounts that were not liable to be deposited. This decision has consistently been applied by multiple Benches of this Tribunal to investigation-stage deposits.

(ii) Parle Agro Pvt. Ltd. vs. Commissioner, CGST, Noida [Excise Appeal No. 70628 of 2019, Final Order No. 70180-70181/2021 dated 25th May, 2021]: The Tribunal conducted a detailed analysis of all relevant interest provisions under the Act (Sections 11AA, 11BB, 11DD, and 11AB) and held that interest at 12% per annum is the appropriate rate for refund of revenue deposits, being the mean of the rates under the various applicable notifications. The Tribunal further held that Section 11B and Section 11BB have no application to refund of investigation-stage deposits.

(iii) Riba Textiles Ltd. vs. Commissioner of Central Excise and Service Tax, Panchkula [Excise Appeal No. 60446 of 2018, CESTAT Chandigarh; also reported as 2020-TIOL-932-CESTAT-CHD]: The facts in this case are of particular significance. The deposits therein were made during investigation proceedings conducted by the DGCEI, prior to the introduction of Section 35FF on 10th May, 2008. The CESTAT, Chandigarh held expressly that “… the appellant is entitled to claim the interest on delayed refund from the date of deposit till its realization.” This decision is directly applicable to the present case, where the deposits were made in FY 1996–97, well before the enactment of Section 35FF.

(iv) Commissioner, C.G.S.T. and Central Excise, Indore Vs Indore Treasure Market City Pvt. Ltd. [(2024) 20 Centax 470 (M.P.)]

(v) Principal Commissioner of C.G.S.T. Vs Green Valley Industries Pvt. Ltd. [(2023) 10 Centax 117 (Meghalaya)]

(vi) Berger Paints India Ltd. Vs Commissioner of Customs, Kolkata [Final Order No.75927/2026 dated 22.07.2026]

(vii) Atcorp Global Pvt. Ltd. v. Commissioner of Customs (Port), Kolkata [Final Order No. 76080- 76081/2026 dated 18.08.2026]

6.9. It is submitted that the above decisions constitute a settled and consistent line of authority from which there is no reason to depart and thus the legal position is no longer res integra; that therefore the appellant’s entitlement to interest at 12% per annum from the date of each deposit is well- established and ought to be affirmed by this Tribunal. 7. In view of the above submissions, the Ld. Chartered Accountant appearing on behalf of the appellant prays that the interest may be granted for the amounts deposited, from the date of their deposit till the date the same was paid/refunded vide the Order-in-Original dated 17.06.2020. In this regard, it is further submitted by the appellant that on this interest which was payable on 17.06.2020 itself, further interest payment may be ordered, since the appellant has been deprived of the said interest from 17.06.2020 till now. Accordingly, it is prayed the appeal may be allowed on these terms. 8. The Ld. Authorized Representative of the Revenue appearing before us submits that the appellant has admittedly filed their Refund claim on 25th February, 2020 and consequently, the refund has been granted within the specified time; that the amounts cannot be treated as pre-deposit in terms of Section 35F so as to enable the appellant to claim the interest under Section 35FF. He has also made written submissions to this effect. Therefore, he justifies the order of the lower appellate authority and prays that the appeal be dismissed. 9. Heard both the sides and perused the appeal papers. 10. Admittedly, in this case, an investigation was taken up by the Revenue officials by visiting the premises of the appellant. The Revenue took the view that the appellant was availing MODVAT Credit, for which they were ineligible. In the course of investigation, the appellant paid the following amounts:

(i) Rs. 15,00,000/- vide Cheque No. 661833 dated 27th July, 1996;

(ii) Rs. 15,00,000/- vide Cheque No. 068132 dated 20th August, 1996;

(iii) Rs. 15,00,000/- vide Cheque No. 784880 dated 28th September, 1996;

(iv) Rs. 2,50,000/- vide Cheque No. 784929 dated 02nd January, 1997; and

(v) Rs. 2,50,000/- vide Cheque No. 807308 dated 01st February, 1997, aggregating to Rs. 50,00,000/-.

11. Even as the amounts were deposited between July 1996 to February 1997, the Show Cause Notice finally came to be issued only on 02.05.2000, i.e. after about 3 to 4 years after the amounts were deposited by the appellant. In the second round of litigation, this Tribunal vide Final Order Nos.75049-75050 of 2020 dated 3rd January, 2020, set aside the said impugned order and allowed the appeal, holding as under: –

“17. We have gone through the facts of the case and perused the appeal record. It is apparent from the impugned order that the Learned Adjudicating Authority, in respect of specific direction from this Tribunal, failed to adhere to the remand direction regarding consideration of submission made by the appellant and also the legal provisions. We find that this Tribunal in case of M/s. Vindhya Steel, who happened to be one of the supplier of the input material, has set aside the order. An appeal against that order was also sustained by Hon’ble High Court of Kolkata. In the circumstances, we find that no charge against the appellant would sustain and the impugned order is bad in law.

18. We also find that the appellant had been submitting the document such as RG23A part (1) and RG23 part (2) alongwith the invoices on which modvat credits had been taken alongwith monthly RT-12 reports. The duty paying documents has also been defaced by the departmental officers while assessing RT-12 return of the appellant unit. In such a circumstance there is no scope of invocation of extended period of limitation, which has been done in this case. The show cause notice has been issued on 02.05.2000 for the period 01.04.1995 to 28.01.1996. The demand is therefore time bared and not sustainable at all.

….

21. We therefore set aside the impugned order and allow the appeals filed by both the appellants with consequential benefit as per law.”

12. From the above factual details, we find that first of all, the Revenue was sitting with the deposits made during 1996-1997 till February 2020, without even issuing the Show Cause Notice. After this, the Show Cause Notice was issued and the demand was confirmed. The Tribunal, remanded the matter back to the adjudicating authority to pass the order as per the directions given. The adjudicating authority has however confirmed the demand. On Appeal, this Bench at Paragraph 17 of its Order dated 3rd January, 2020 reproduced supra, has specifically noted that “It is apparent from the impugned order that the Learned Adjudicating authority, in respect of specific direction from the Tribunal, failed to adhere to the remand direction regarding consideration of submission made by the appellant’. The impugned order in question was set aside and the appeal was allowed ‘with consequential’ benefit as per law. 12.1. No factual details are emerging to the effect that this Final Order dated 3rd January, 2020 was further agitated by the Revenue before the High Court / Supreme Court. 12.2. This view also gets fortified by the fact that the refund of the deposited amount has been granted vide Order-in-Original dated 17th June, 2020, which has not been challenged by the Revenue. The Revenue has refunded the basic amount of Rs.50,00,000 on 17th June, 2020 and has not paid any interest for the intervening period i.e., 1996 to 2020 on the ground the appellant has filed the refund claim on 25.02.2020 [Para 5.2 of the OIA]. Applying the provisions of Section 11BB it was held that the refund has been granted within the specified time limit of 3 months; the Commissioner (Appeals) in the impugned order has accordingly held that no interest is required to be paid to the appellant. 13. From the factual details discussed above, it is evident that the MODVAT Credit taken by the appellant was disputed by the Revenue and in the course of investigation, Rs.50,00,000/- has been paid by the appellant by way of cheques / challans during 1996 – 1997, much before even the issue of the Show Cause Notice on 02.05.2000. After two rounds of litigation, finally it was held by the Tribunal vide the Final Order dated 3rd January, 2020 that the appellant was entitled for the said amount of MODVAT Credit. The impugned order in question was therefore set aside and the appeal was allowed along with ‘consequential benefit’. No further appeal was filed by the Revenue against this Final Order. The net conclusion in the Order is that, the issue as to whether the appellant is eligible or not for the MODVAT Credit in question has been effectively held in favour of the appellant. This shows that the appellant was correct from day one when they have taken the credit. It also shows that from day one of the investigation, the Revenue was not entitled for even a single rupee of the amount which was deposited by the appellant. Effectively for the entire amount of Rs.50,00,000/- paid by the appellant in 1996-1997, the Revenue had absolutely no legal claim at all, from that day onwards. The impugned Order-in-Appeal shows that the Revenue believes that they are entitled to enjoy this Rs.50,00,000/- from 1996-1997 till 02.05.2020, when the Refund was filed by the appellant consequent to the Tribunal’s order. Nothing can be more erroneous than this perception. Once the Tribunal sets aside the demand, the amount deposited by the appellant ceases to be Excise Duty and is to be held only as amount deposited by them. So far as the excuse of the Revenue that the appellant has filed their refund claim under Form R, this cannot be used as a weapon. The appellant has deposited the same as Excise Duty in 1996-1997 purely upon the insistence of the Revenue. He has contested the same all along till the issue came to be decided in January, 2020. Hence, it is clear that this is was not any voluntary payment on his part. Naturally, if the Revenue wants the appellant to seek the refund, they would follow the Form R from their side. Mere filing of Form R itself cannot give the colour of Excise Duty, to enable the Revenue to deny interest payments to the appellant. Therefore, we hold that the denial of the interest on the ground that Section 11BB provisions were followed, is not legal and we set aside the impugned order on this ground. 14. Another indirect reference made by the Revenue is to the effect that there exists no provision to pay the interest this case. Admittedly, there was no statutory provision available for claiming the interest for the deposits made in 1996-1997. But we are also bound to take cognizance of the decisions of Supreme Court and High Courts in such cases. It would therefore be pertinent to go through some of the important judgements on the issue as to from which date the interest would accrue. We have for reference the following case laws:

• Ranbaxy Laboratories Ltd. v. Union of India [2012 (27) S.T.R. 193 (S.C.)] [21-10-2011]

“The challenge in this batch of appeals is to the final judgments and orders delivered by the High Court of Delhi in W.P. No. 13940/2009 and the High Court of Judicature at Bombay in Central Excise Appeal Nos. 163/2007 [2008 (229) E.L.T. 498 (Bom.)] and 124 of 2008. The core issue which confronts us in all these appeals relates to the question of commencement of the period for the purpose of payment of interest, on delayed refunds, in terms of Section 11BB of the Central Excise Act, 1944 (for short “the Act”). In short, the question is whether the liability of the revenue to pay interest under Section 11BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund or on the expiry of the said period from the date on which the order of refund is made?

…..

14. At this stage, reference may be made to the decision of this Court in Shreeji Colour Chem Industries (supra), relied upon by the Delhi High Court. It is evident from a bare reading of the decision that insofar as the reckoning of the period for the purpose of payment of interest under Section 11BB of the Act is concerned, emphasis has been laid on the date of receipt of application for refund. In that case, having noted that application by the assessee requesting for refund, was filed before the Assistant Commissioner on 12th January 2004, the Court directed payment of Statutory interest under the said Section from 12th April 2004 i.e. after the expiry of a period of three months from the date of receipt of the application. Thus, the said decision is of no avail to the revenue.

15. In view of the above analysis, our answer to the question formulated in para (1) supra is that the liability of the revenue to pay interest under Section 11BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund under Section 11B(1) of the Act and not on the expiry of the said period from the date on which order of refund is made.

16. As a sequitur, C.A. No. 6823 of 2010, filed by the assessee is allowed and C.A. Nos. 7637/2009 and 3088/2010, preferred by the revenue are dismissed. The jurisdictional Excise officers shall now determine the amount of interest payable to the assessees in these appeals, under Section 11BB of the Act, on the basis of the legal position, explained above. The amount(s), if any, so worked out, shall be paid within eight weeks from today.” [Emphasis supplied]