CESTAT: Pre-Demand Payment Under Protest Is Merely a Deposit; 12% Interest Payable From Date of Deposit

CESTAT: Pre-Demand Payment Under Protest Is Merely a Deposit; 12% Interest Payable From Date of Deposit

Introduction

The Customs, Excise and Service Tax Appellate Tribunal (Allahabad Bench) has held that an amount paid under protest during investigation, prior to any adjudication or confirmed demand, cannot be treated as “duty” but only as a deposit. The Tribunal ruled that interest on refund of such amount is payable at 12% per annum from the date of deposit till the date of actual refund. The order was passed by Judicial Member P.K. Choudhary while allowing the appeal filed by T T Limited.

Factual Background

T T Limited, a 100% export-oriented unit engaged in manufacturing cotton yarn, had paid ₹22,30,445 on Domestic Tariff Area clearances between 2000 and 2003 under protest. The payments were made following repeated communications from the Department, though the company maintained that the levy of Additional Duty of Excise (Textiles & Textile Articles) was exempt under Notification No. 55/91-CE. At the time of deposit, there was no adjudication or confirmed demand determining liability. The company consistently disputed the applicability of the levy.

After the unit was debonded in 2007, the company reconstructed its records and filed a refund claim in June 2022. The Department sanctioned the refund but granted interest at 6% per annum from September 27, 2022, treating the amount as “duty” governed by Sections 11B and 11BB of the Central Excise Act.

Procedural Background

Aggrieved by the grant of interest at 6% and only from a later date, the appellant approached the Tribunal contending that the amount paid was not “duty” but a deposit made under protest, and therefore interest ought to be granted from the date of deposit at a higher rate.

Issues

1. Whether an amount paid under protest before adjudication can be treated as “duty” under the Central Excise Act.

2. Whether Sections 11B and 11BB apply to refund of such amounts.

3. From which date and at what rate interest is payable on refund of a pre-adjudication deposit.

Contentions of the Parties

The appellant contended that the amount was deposited during investigation without any quantified demand or adjudication and therefore did not acquire the character of duty. It argued that Sections 11B and 11BB, which govern refund of duty, were inapplicable. Relying on judicial precedents including the Tribunal’s decision in Parle Agro as affirmed by the Allahabad High Court, it was submitted that interest at 12% per annum was payable from the date of deposit.

The Department maintained that once the amount was refunded, interest would be governed by Section 11BB of the Central Excise Act, which prescribes interest on delayed refund of duty at 6% per annum, and that interest was correctly calculated from the statutory date.

Reasoning and Analysis

The Tribunal held that the payment never acquired the character of duty. It observed that the amount was deposited under protest during investigation and prior to any adjudication or confirmation of demand. There was neither a quantified demand nor any adjudication determining liability at the time of deposit.

The Bench stated that, “The amount deposited by the Appellant was not duty of excise, but a deposit made under protest during the course of investigation and prior to any adjudication or confirmation of demand.”

It further observed that once it is accepted that no duty was legally payable, the amount deposited under protest cannot be treated as “duty” so as to attract Sections 11B and 11BB of the Central Excise Act. The Tribunal clarified that Section 11BB applies only to refund of duty and not to refund of revenue deposits. Relying on its earlier decision in Parle Agro, as affirmed by the Allahabad High Court, the Tribunal held that in the absence of a prescribed statutory rate for such deposits, interest at 12% per annum was appropriate. It also noted that retention of money without authority of law would offend Article 265 of the Constitution.

Decision

The Tribunal directed the Department to pay the balance interest of ₹56,64,915 at 12% per annum from the date of deposit till the date of actual refund. The appeal filed by T T Limited was allowed.

In this case the appellant was represented by Advocates Nishant Mishra and Bimal Jain. Meanwhile the respondent was represented by Authorized Representative, A. K. Choudhary.