Statutory Interest Rate Prescribed Under Section 35FF Prevails Over Equitable Claims for Higher Compensatory Interest

The Appellant, a provider of taxable services, deposited ₹30,54,449 under protest on 28.03.2012 during an investigation into its service tax liability.

Following the issuance of show cause notices, a demand was confirmed via Order-in-Original dated 31.05.2016.

However, the CESTAT set aside this demand on 13.06.2022.

The Appellant subsequently sought a refund, which was sanctioned with interest at the rate of 6% per annum under Section 35FF of the Central Excise Act.

The Appellant challenged this rate before the Commissioner (Appeals) and the Tribunal, seeking 12% interest on the grounds of "revenue deposit" and restitutionary principles; both authorities rejected the claim, affirming the statutory rate.

1. Whether the Appellant is entitled to interest at a rate higher than the 6% per annum prescribed by statute on the amount refunded pursuant to the setting aside of a service tax demand.

2. Whether the Court, exercising appellate jurisdiction under Section 35G of the Central Excise Act, can enhance interest rates based on equitable principles dehors the statutory framework.

Section 35FF of the Central Excise Act, 1944 (read with Section 83 of the Finance Act, 1994), which governs interest on delayed refunds of pre-deposits.

Notification No. 24/2014-C.E. (N.T.) dated 12.08.2014, which prescribes the interest rate at 6% per annum.

Legal principle from CIT v. Gujarat Fluoro Chemicals Ltd., which clarified that interest is only payable as provided under the statute and that Sandvik Asia Ltd. v. CIT does not establish a general principle to claim interest dehors statutory provisions.

The Court observed that the amount deposited during the investigation was correctly treated as a pre-deposit under the nature of Section 35FF.

It reasoned that since Parliament has enacted a complete statutory mechanism for interest and delegated the power to notify rates to the Central Government, an assessee’s entitlement must remain strictly within that framework.

The Court emphasized that in an appeal under Section 35G, its role is confined to examining the correct application of the law; because the Appellant did not challenge the validity of Section 35FF or the 6% notification, the Court lacked the jurisdiction to substitute the statutory rate with a "compensatory" rate based on equity or restitution.

The Court distinguished the Sandvik Asia case, noting it was confined by subsequent Supreme Court rulings to its specific facts.

The appeal was dismissed, affirming that the statutory rate of 6% per annum was appropriate and that the Court cannot enhance such rates in the absence of a constitutional challenge to the provision itself.