CESTAT Kolkata Orders 12% Interest On Excise Investigation Deposits From Date Of Deposit

Background of the Dispute

In Bengal Hammer Industries Private Limited Vs Commissioner of Central Tax (CESTAT Kolkata), the core controversy was confined to interest on a sum of Rs.50,00,000/- deposited during an excise investigation many years before the issuance of any Show Cause Notice. The assessee was a registered unit under the Central Excise Act, 1944, engaged in manufacturing activities.

During the Financial Year 1996–97, officers of the Directorate General of Anti-Evasion (C.Ex.), Calcutta Zonal Unit initiated an investigation regarding alleged wrongful availment of MODVAT credit. In the course of this investigation, and before any Show Cause Notice was served, the assessee deposited an aggregate amount of Rs.50,00,000/- between July 1996 and February 1997.

Subsequently, a Show Cause Notice dated 02.05.2000 proposed to recover MODVAT credit of Rs.78,91,213/- pertaining to the period **01.04.1995 to 28.01.1996`. This demand was confirmed in adjudication, remanded once by the Tribunal, and again confirmed by the adjudicating authority on 04.01.2010. In the second round of appeal, the Tribunal, vide Final Order Nos. 75049–75050 of 2020 dated 03.01.2020, set aside the demand and allowed the appeals with consequential relief.

Pursuant to this favourable order, the assessee sought refund of the Rs.50,00,000/- deposited during investigation. The amount was refunded via Order-in-Original No. 02/R/Refund/Bally-I/2020-2021 dated 17.06.2020, but no interest was sanctioned.

The assessee’s dispute before the Tribunal in the present appeal was limited to:

  1. From which date interest should be computed on the refunded amount of Rs.50,00,000/-; and
  2. At what rate such interest is payable.

Procedural Chronology

The assessee’s representative laid out the sequence of events, which the Tribunal noted:

  • 10.07.1996 – Search conducted at various premises of Bengal Hammer Industries Private Limited by the Directorate General of Anti Evasion (C.Ex.), Calcutta Zonal Unit.

  • 27.07.1996 to 01.02.1997 – Deposits totalling Rs.50,00,000/- made during investigation:

    • Rs.15,00,000/- – Cheque No. 661833 dated 27.07.1996
    • Rs.15,00,000/- – Cheque No. 068132 dated 20.08.1996
    • Rs.15,00,000/- – Cheque No. 784880 dated 28.09.1996
    • Rs.2,50,000/- – Cheque No. 784929 dated 02.01.1997
    • Rs.2,50,000/- – Cheque No. 807308 dated 01.02.1997

  • 03.01.2020 – The Regional Bench of CESTAT, Kolkata passed Final Order No. 75049–75050/2020, allowing the assessee’s appeals on the MODVAT issue and setting aside the demand.

  • 25.02.2020 – Refund application in Form-R filed for Rs.50,00,000/-.

  • 17.06.2020 – Refund of Rs.50,00,000/- sanctioned through Order-in-Original, but without interest.

  • 03.07.2020 – Assessee requested grant of interest on the refunded sum.

  • 29.09.2020 – Appeal filed before Commissioner (Appeals) seeking interest on the refunded deposit.

  • 18.02.2021 – Order-in-Appeal No. 78/HWH/CE/2020-21 passed, holding that interest under Section 11BB is payable only after three months from the date of refund claim. As refund was within three months, interest was effectively denied for the earlier period.

  • 16.04.2021 – Present appeal filed before CESTAT challenging denial / restriction of interest.

  • Thereafter, multiple applications were moved for early hearing, an initial rejection ensued, and the assessee approached the Hon’ble Calcutta High Court under C.O. No. 2581 of 2024.

  • 28.01.2026 – The Hon’ble Calcutta High Court directed CESTAT to dispose of the appeal expeditiously, preferably within three months of communication of the order.

  • The appeal was accordingly taken up and finally heard by the Division Bench.

Assessee’s Core Contentions

Nature of the Deposit

The assessee argued that:

  • The Rs.50,00,000/- paid during 1996–97 was not excise duty, but a revenue/investigation deposit made during investigation.
  • Such amounts do not constitute “duty” under Section 11B and hence, provisions of Section 11B and Section 11BB of the Central Excise Act, 1944 are inapplicable.
  • The deposit also did not fall within the statutory concept of pre-deposit under Section 35F, particularly as it was made long before adjudication.

Claim for Interest from Date of Deposit

The assessee contended that: