Amounts paid during excise investigations are deposits, not duty; CESTAT orders interest from date of payment

The appellant, a steel-products manufacturer, deposited a total of ₹1,40,93,564 through cheques and a debit to its CENVAT account during an investigation into alleged clandestine manufacture and removal.

The deposits were made before the first show-cause notice and before any adjudication of duty liability.

The Commissioner later confirmed the demands and appropriated the deposits; the Tribunal set that order aside on appeal.

On the appellant’s request, the department refunded the amount but denied interest, treating the request as a refund of duty under Sections 11B and 11BB of the Central Excise Act, 1944.

The appellant appealed, seeking interest from the date of deposit, including at 12% per annum.

Whether amounts deposited during investigation, before assessment or adjudication of duty liability, constituted duty or a deposit.

Whether the appellant was entitled to interest on the refunded amount, and, if so, under which statutory provision and from what date.

Under Sections 35F and 35FF of the Central Excise Act, 1944, an amount deposited as a pre-deposit is refundable with interest at the notified rate from the date of deposit until repayment.

Section 11BB provides interest on delayed refunds of duty, ordinarily from immediately after three months from the date of the refund application; it does not govern a refund of an amount that was not duty.

A payment made during investigation, before an assessed or adjudicated duty liability exists, is a deposit rather than duty; where such an amount is retained as a pre-deposit in an appeal, Section 35FF applies.

In Commissioner of Income Tax, Gujarat v. Gujarat Fluoro Chemicals, the Supreme Court clarified that an assessee is entitled to statutory interest, not additional interest based on Sandvik Asia Ltd. v. Commissioner of Income Tax.

When the appellant made the payments, no assessment or adjudication had established any duty payable; the payments therefore could not then be treated as duty.

Although the Commissioner later appropriated them, that order was set aside, and the amounts remained with the department during the appeal.

The Tribunal treated the entire amount as a pre-deposit under Section 35F, noting that the deposits were accepted in lieu of a separate pre-deposit and that there was no order limiting the retained amount to the mandatory 10%.

Accordingly, Section 35FF—not Section 11BB—governed interest.

The appellant’s claim to 12% interest was rejected because interest must be awarded at the statutory rate, not on equitable grounds.

The Tribunal modified the impugned order to treat the amount deposited during the investigation as a deposit under Section 35F and directed payment of interest under Section 35FF at the applicable rate, from the date of deposit until the date of refund.