2025 (7) TMI 1214 - AT - Customs

Denial of payment of interest on the refund amount - Rate of interest payable. Denial of payment of interest on the refund amount - HELD THAT - The issue of sanction of interest for the refund of the amount deposited during the course of investigation is no longer res integra as the Hon ble Karnataka High Court has held in the case of Commissioner of C.Ex. Bangalore v. KVR Construction 2012 (7) TMI 22 - KARNATAKA HIGH COURT that interest is payable on such refunds - The impugned order rejecting the appeal filed by the appellant on the ground of maintainability is not sustainable and hence the same is set aside. The appellant are entitled for granting of interest from the date of deposit during the course of investigation till the date of refund. Rate of interest payable - HELD THAT - As per the decision of the Hon ble Apex Court in Rajendra Kumar Jain 2024 (5) TMI 743 - CALCUTTA HIGH COURT interest at the rate of 12% is payable when the amount deposited during the course of investigation is refunded later. The appellant is liable to be paid interest @12% for the refund sanctioned in this case from the date of deposit of the amount till the date of refund. The appeal is accordingly allowed by setting aside the order impugned insofar as the same relates to denial of interest in favour of the instant appellant M/s Alliance International - appeal allowed.

Summary

ISSUES:

Whether interest is payable on amounts deposited during the course of investigation and subsequently refunded under the Customs Act, 1962.Whether the provisions of Sections 129E and 129EE of the Customs Act, 1962 mandate payment of interest on such refunds.Whether limitation under Section 11B of the Central Excise Act, 1944 (applicable to service tax claims) applies to refunds of amounts paid under mistaken belief or during investigation.The appropriate rate of interest payable on delayed refunds of amounts deposited during investigation.The binding nature and applicability of circulars or instructions issued by the Central Board of Indirect Taxes and Customs regarding interest on refunds.

RULINGS / HOLDINGS:

The Court held that interest is payable on refunds of amounts deposited during the course of investigation, citing that the issue is "no longer res integra" following authoritative decisions including those of the Hon'ble Karnataka High Court and the Hon'ble Supreme Court.The provisions of Sections 129E and 129EE of the Customs Act, 1962 support the grant of interest on delayed refunds, and the denial of interest by the lower authorities was set aside.The limitation period under Section 11B of the Central Excise Act, 1944 does not apply to refunds of amounts paid mistakenly or under investigation, as these amounts do not constitute "duty of excise" or "service tax" payable in law.The Court directed payment of interest at the rate of 12% per annum from the date of deposit till the date of refund, relying on the Apex Court's decision in Sandvik Asia Ltd. and consistent Tribunal and High Court precedents.Circulars and instructions issued by the Central Board of Indirect Taxes and Customs are binding on the department and support the entitlement to interest on refunded amounts.

RATIONALE:

The Court applied the legal framework under the Customs Act, 1962, particularly Sections 27, 129E, and 129EE, and the Central Excise Act, 1944 (Section 11B), as made applicable to service tax matters by the Finance Act, 1994.Precedent decisions from the Hon'ble Karnataka High Court (Commissioner of C.Ex., Bangalore v. KVR Construction), the Hon'ble Supreme Court (Mafatlal Industries Ltd. v. Union of India), and various Tribunal orders established that amounts paid under protest or during investigation, if refundable, attract interest automatically without the need for a formal refund claim under Section 11B.The Court recognized that amounts paid under mistaken belief or without lawful authority do not constitute excise duty or service tax and hence are outside the scope of Section 11B's limitation provisions.The Apex Court's ruling in Sandvik Asia Ltd. was relied upon to determine the appropriate rate of interest (12% per annum) and the principle that withholding of amounts due to the assessee without justification warrants compensation by way of interest.The Court emphasized that binding circulars from the Central Board of Indirect Taxes and Customs must be followed by departmental authorities to ensure consistent application of law and equity.No dissenting or concurring opinions were recorded; the decision reflects a doctrinal consistency with established jurisprudence on refund and interest under indirect tax laws.