Interest on amounts deposited during investigation is payable from the date of deposit until refund.

UCO Bank had deposited amounts with the Revenue during an investigation in 2008–2009.

The Tribunal set aside the confirmed demand on 9 August 2019; the Department’s appeal to the Supreme Court was dismissed on 25 January 2023.

The refund was sanctioned on 5 January 2024.

The Commissioner (Appeals) held that interest was payable from the dates of deposit until refund.

The Revenue appealed, contending that any interest should run only after the issue was finally resolved by the Supreme Court

1. Whether UCO Bank was entitled to interest on the amounts deposited during investigation from the dates of deposit until refund, rather than only from the Supreme Court’s dismissal of the Department’s appeal

2. Whether the Commissioner (Appeals)’ order granting such interest should be disturbed

The Tribunal relied on Sandvik Asia Ltd. v. Commissioner of Income Tax-I, Pune, which recognises compensation by way of interest where money lawfully due to a taxpayer has been wrongfully withheld for an extended period.

It also referred to Ranbaxy Laboratories Ltd. v. Union of India on the commencement of statutory interest under Section 11BB of the Central Excise Act, 1944, and to Commissioner of Central Excise, Panchkula v. Riba Textiles Ltd. on compensation for delayed refunds.

The Tribunal further relied on its decision in Bengal Hammer Industries (P) Ltd. v. Commissioner of Central Tax, Kolkata, which discussed the applicable principles for interest on investigation deposits, and on Berger Paints India Ltd. v. Commissioner of Customs, which followed the Calcutta High Court’s ruling on interest for delayed refunds of investigation deposits.

Applying those authorities, the Tribunal treated the deposits as amounts not legally payable by the respondent and held that the Revenue could not retain them without interest until refund.

The Tribunal found that the deposits were made in 2008 and that the Tribunal’s 2019 decision setting aside the confirmed demand established that the respondent was not liable to pay the amounts.

The Supreme Court’s dismissal of the Department’s appeal affirmed that result; it did not justify withholding the respondent’s money without interest until 2023 or the eventual refund in 2024.

Given the lengthy period during which the Revenue retained the deposits and the authorities recognising interest as compensation for wrongful withholding, the Tribunal found no basis to interfere with the Commissioner (Appeals)’ order

The order does not separately specify an interest rate.