Interest at 12% is payable from deposit until refund on amounts retained during investigation.

On 12 February 2002, Siddhnath Shipping deposited ₹20,00,000 during an investigation concerning the alleged diversion of fancy scarves and fancy dupattas from its unit in the Kandla Special Economic Zone.

The matter ultimately reached CESTAT, Ahmedabad, which, by Final Order No. A/10315–10316/2023 dated 23 February 2023, set aside the adjudication order and allowed the appellant’s appeal with consequential relief.

The appellant thereafter claimed refund of the deposited amount along with interest.

Although the ₹20,00,000 was refunded, the claim for interest was rejected on the ground that the refund had been sanctioned within three months of the refund application and therefore interest was not payable under Section 27A of the Customs Act, 1962.

Whether the appellant was entitled to interest on the amount of ₹20,00,000 deposited during investigation, notwithstanding that the refund was sanctioned within three months of the refund application under Section 27A of the Customs Act, 1962?

Whether such interest was payable from the date of deposit until the date of refund, and, if so, at the rate of 12% per annum?

The Tribunal considered Section 27A of the Customs Act, 1962, which provides for statutory interest on delayed refunds, but held that entitlement to interest on money retained by the Revenue is not confined to the statutory period prescribed for processing a refund claim.

It relied on the compensatory principle recognised in Sandvik Asia Ltd. v. Commissioner of Income Tax, namely that unjustified retention of an assessee’s money warrants compensation by way of interest.

It further followed Kuil Fireworks Industries v. Collector of Central Excise, 1997 (95) E.L.T. 3 (S.C.), and the line of authorities referred to in KLJ Plasticizers Ltd. v. Commissioner of Customs, Kandla, Final Order No. 11077/2025, holding that deposits made during investigation or as pre-deposits, when ultimately refundable, should carry interest from the date of deposit.

The rate of 12% per annum was supported by Commissioner of Central Excise v. ITC Ltd., Sony Pictures Networks India Pvt. Ltd. v. Union of India, 2017 (353) E.L.T. 179 (Ker.), and the Tribunal’s decision in Patel Labour Contractors Pvt. Ltd. v. Commissioner of Central Excise, Ahmedabad-I.

The Tribunal treated the ₹20,00,000 payment as a deposit made during investigation rather than as a finally determined customs liability.

Since the underlying adjudication had been set aside and the appellant’s appeal had been allowed with consequential relief, the Revenue had no lawful basis to retain the amount.

The Tribunal held that the Department’s reliance on the three-month period under Section 27A was insufficient because the appellant’s claim was founded on the broader compensatory principle applicable to Revenue’s retention of refundable deposits.

Following its earlier decisions in KLJ Plasticizers and Patel Labour Contractors, as well as the Supreme Court and High Court authorities recognising interest on unjustifiably retained amounts, the Tribunal concluded that interest had to run from the date on which the appellant deposited the money, rather than merely from the expiry of the statutory refund period.

The Tribunal held that Siddhnath Shipping was entitled to interest at 12% per annum on ₹20,00,000 from the date of actual deposit until the date of refund, notwithstanding that the refund had been sanctioned within three months of the refund application.

The order denying interest was accordingly set aside, with consequential relief to the appellant.