Section 35G appeals are not maintainable against CESTAT directions issued under Rule 41.

The respondent undertook a turnkey drinking-water supply and distribution project for the Kerala Water Authority and, believing that the activity was taxable as commercial or industrial construction service, paid service tax. After being advised that laying water pipelines for the project was not taxable, it filed two refund claims under Section 11B of the Central Excise Act, 1944: one on 5 January 2012 for ₹15,23,691 and another on 20 March 2012 for ₹2,05,01,047.

The second claim was returned as time-barred, while the first was rejected; the Commissioner (Appeals) upheld the rejections. The CESTAT subsequently set aside those orders on 9 August 2024 and directed sanction of the refunds, which was upheld by the High Court on 3 January 2025.

Pursuant to the Tribunal’s order, the respondent sought implementation on 12 September 2024 and supplied further documents after a deficiency memo. The Assistant Commissioner sanctioned the principal refund on 6 January 2025 but did not grant interest.

The respondent thereafter filed an appeal before the Commissioner (Appeals) and also moved a miscellaneous application under Rule 41 of the CESTAT Rules, 1982. On 4 July 2025, the Tribunal directed payment of interest at 9% per annum, calculated from three months after the original refund-claim dates in 2012. The Revenue challenged that direction under Section 35G of the Central Excise Act, 1944.

Whether an appeal under Section 35G of the Central Excise Act, 1944 is maintainable against a direction issued by the CESTAT under Rule 41 of the CESTAT Rules, 1982 for implementation of its earlier final order?

Whether interest under Section 11BB is payable when the refund was sanctioned within three months of the submission of complete documents following the Tribunal’s order, or whether the three-month period must be calculated from the original refund applications filed in 2012?

Whether the respondent’s subsequent implementation request constituted a fresh refund application, thereby postponing the commencement of the interest period?

Whether the Tribunal was justified in awarding interest at 9% per annum despite Notification No. 24/2014-C.E. (N.T.), which prescribed interest at 6% for delayed refunds?

Whether the Tribunal exceeded its jurisdiction by directing payment of interest under Rule 41, or impermissibly modified its earlier final order after becoming functus officio?

Whether the respondent suppressed the pendency of its appeal before the Commissioner (Appeals) and thereby obtained the Tribunal’s order improperly?

Section 35G of the Central Excise Act, 1944 permits a High Court appeal only from an order passed by the Tribunal “in appeal”; a procedural or implementation direction under Rule 41 of the CESTAT Rules, 1982 is not an appellate order and is therefore outside Section 35G jurisdiction.

Rule 41 empowers the CESTAT to issue directions necessary to secure the ends of justice and give effect to its orders.

Under Section 11BB of the Central Excise Act, interest on delayed refunds commences on expiry of three months from the date of receipt of the original refund application under Section 11B(1), and not from the date of a subsequent appellate order; this principle was derived from Ranbaxy Laboratories Ltd. v. Union of India, 2011 (273) E.L.T. 3 (S.C.).

The Court also relied on M/s. Nagarjuna Construction Co. Ltd. v. CCE, Hyderabad, 2010 (19) S.T.R. 259 (Tri.-LB), for the principle that laying water pipelines for potable-water projects undertaken for government agencies is not taxable commercial or industrial construction service.

It further held that amounts paid under a mistake of law do not bear the character of tax under Article 265 of the Constitution and may attract compensatory interest; consequently, the prescribed 6% rate under Notification No. 24/2014-C.E. (N.T.) was held inapplicable in the circumstances.

The Court referred to Commissioner of Customs (Import), Mumbai v. Pride Foramer, 2006 (204) E.L.T. 381 (Bom.), and Commissioner of Customs, Bangalore v. Toyota Kirloskar Auto Parts Pvt. Ltd., 2013 (297) E.L.T. A149 (S.C.), regarding the non-appellate character of Rule 41 orders.

The Court first held that the Revenue’s appeal was not maintainable because the impugned CESTAT order was issued under Rule 41 to implement the Tribunal’s earlier final order and was not an order passed “in appeal” under Section 35C arising from proceedings under Section 35B.

The Tribunal therefore acted within its procedural and inherent jurisdiction in issuing consequential directions concerning interest.

On the merits, the Court treated the respondent’s 12 September 2024 communication as an implementation request rather than a fresh refund claim. Since the original refund applications were filed on 5 January and 20 March 2012, the three-month period under Section 11BB had expired long before the refund was ultimately sanctioned; the subsequent submission of supporting documents could not restart that period.

The Court further found that the tax had been paid under a mistake of law in respect of a non-taxable public water-supply project. It consequently treated the interest awarded by the Tribunal as compensatory rather than merely statutory interest governed by the 6% notification, and upheld the 9% rate.

The respondent’s protective appeal before the Commissioner (Appeals), which was disclosed and later withdrawn, did not amount to suppression of material facts.

It answered the substantial questions against the Revenue and in favour of the respondent: interest was payable from three months after the original 2012 refund applications; the Tribunal was justified in awarding interest at 9% per annum; the award was not barred by Notification No. 24/2014-C.E. (N.T.); the Tribunal had jurisdiction under Rule 41 to issue the implementation direction; there was no suppression of facts; and an appeal under Section 35G did not lie against the Rule 41 direction.

The Tribunal’s order was accordingly upheld, with no order as to costs.