2025 (7) TMI 1467 - AT - Customs

Interest on refund of the amount deposited during the course of investigation - relevant date for calculation of interest - rate of interest. Relevant date for calculation of interest - 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 - HELD THAT - The appellant has cited the decisions in the case of Sandvik Asia 2006 (1) TMI 55 - SUPREME COURT and claimed interest @12% - it was held in the said case that 1989 (4) TMI 80 - SUPREME COURT - thus 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 Falcon Exports - 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 delayed refunds of pre-deposited amounts.Whether the limitation period under Section 11B of the Central Excise Act, 1944 (applicable to service tax claims) applies to refunds of amounts paid under mistaken belief or without authority of law.The applicable rate of interest on delayed refund of amounts deposited during investigation.Whether reliance on circulars or instructions issued by the Central Board of Indirect Taxes and Customs is binding on the department regarding interest on refunds.

RULINGS / HOLDINGS:

Interest is payable on amounts deposited during the course of investigation and subsequently refunded, from the date of deposit till the date of refund, under the Customs Act, 1962, as the issue is "no longer res integra".Sections 129E and 129EE of the Customs Act, 1962, provide for payment of interest on delayed refunds of pre-deposited amounts, and the rate fixed by notification under Section 129EE applies from the date the provision came into force.The limitation period under Section 11B of the Central Excise Act, 1944, does not apply to refunds of amounts paid under mistake of law or without authority, as such payments do not constitute "duty of excise" or "service tax" payable in law.The appropriate rate of interest on delayed refunds of such amounts is 12% per annum, as supported by binding Supreme Court decisions and consistent tribunal and High Court rulings.Circulars or instructions issued by the Central Board of Indirect Taxes and Customs are binding on the department and cannot be disregarded in denying interest on refunds.

RATIONALE:

The Court relied on the legal framework established by Sections 129E and 129EE of the Customs Act, 1962, which govern the payment of interest on delayed refunds of pre-deposited amounts.Precedents from the Hon'ble Karnataka High Court and the Supreme Court affirm that amounts paid under mistake of law or without authority do not attract the limitation under Section 11B of the Central Excise Act, 1944, and are refundable with interest.Decisions of this Tribunal and various High Courts (including Calcutta, Delhi, and Telangana High Courts) consistently hold that interest at 12% per annum is payable on delayed refunds of amounts deposited during investigation or paid under mistake.The Court emphasized that the department lacks authority to retain amounts paid without lawful obligation and that withholding such amounts without compensation is unjustifiable and contrary to principles of equity and restitution.The Court further noted that the binding nature of circulars or instructions from the Central Board of Indirect Taxes and Customs requires the department to comply with prescribed procedures and grant interest where applicable.The judgment in Sandvik Asia Ltd. v. Commissioner of Income Tax was cited to support the principle that interest is payable as compensation for wrongful withholding of amounts due, reinforcing the statutory and judicial consensus on the matter.