Interest at 12% is payable on refunded redemption fine from deposit until repayment.

The appellant, a proprietorship firm importing iron and steel products, imported goods that were initially freely importable.

Following the DGFT’s imposition of a Minimum Import Price restriction by Notification No. 38/2015–2020 dated 5 February 2016, the goods were subjected to confiscation proceedings and the appellant paid redemption fine to obtain their release.

In respect of Appeal No. C/60490/2025, the Commissioner (Appeals), by order dated 27 July 2023, set aside the confiscation and redemption fine of ₹18,00,000, following which the appellant filed a refund claim on 23 August 2023.

The refund was sanctioned by Order-in-Original dated 30 January 2024, but interest was denied on the ground that the refund had been granted within three months and that the matter had remained pending in appeal.

The second appeal concerned a redemption fine of ₹27,00,000, refunded pursuant to Order-in-Original dated 16 October 2024.

The Commissioner (Appeals) upheld the denial of interest in both matters, leading to the present appeals.

Whether the appellant was entitled to interest on the amounts paid as redemption fine and subsequently refunded after the confiscation orders were set aside?

Whether interest on such refunded revenue deposits was governed exclusively by Section 27A of the Customs Act, 1962, including its three-month limitation, or could be granted as compensatory interest from the date of deposit until repayment?

Section 27A of the Customs Act, 1962 provides for statutory interest on delayed refunds in cases covered by Section 27, but the Tribunal held that the provision was not directly applicable because the claims concerned refund of redemption-fine deposits rather than refund of customs duty.

The Tribunal applied the compensatory-interest principle recognised by the Supreme Court in Sandvik Asia Ltd. v. Commissioner of Income Tax-I, Pune, under which interest may compensate an assessee for prolonged retention of money by the State.

It relied on Parle Agro Pvt. Ltd. v. Commissioner of CGST, Noida, where interest at 12% per annum was awarded on the refund of revenue deposits; that decision was upheld by the Allahabad High Court.

It also followed Pace Marketing Specialties v. Commissioner of Central Excise, and Riba Textiles Pvt. Ltd. v. Commissioner of Central Excise and Service Tax, Panchkula, which granted interest at 12% per annum on amounts deposited during investigation or adjudication from the date of deposit until realisation.

The decisions relied upon by the Department, concerning interest under Section 27A or delayed statutory refunds, were held distinguishable because they did not concern refunded revenue deposits.

The redemption fines were paid by the appellant as a condition for release of the goods and were therefore revenue deposits made under compulsion.

Once the confiscation and redemption fines were set aside, the amounts ceased to have any lawful basis for retention and became refundable.

The Tribunal held that the Department could not avoid compensating the appellant merely because the refund was sanctioned within three months of the formal refund application, since Section 27A dealt with statutory refunds of duty and did not govern the present revenue-deposit refund.

Applying the compensatory nature of interest and the precedents awarding 12% interest on similarly retained deposits, the Tribunal directed that interest be calculated from the original dates of deposit, rather than from the date of the refund application, until the date of actual payment.

The Tribunal allowed both appeals and set aside the orders of the Commissioner (Appeals).

The appeals were accordingly allowed.