Judicial Pronouncement on Interest Entitlement for Investigation Deposits

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, recently delivered a crucial judgment regarding the payment of interest on amounts deposited by an assessee during a departmental investigation. In the matter of Spring Merchandiser Pvt Ltd Vs Commissioner of CGST & Central Excise, the Tribunal clarified the legal position on whether such deposits should be treated as statutory pre-deposits and the applicable rate of interest upon their refund.

This comprehensive summary breaks down the factual matrix, the arguments presented by both the Revenue and the assessee, and the final judicial analysis that led to the mandate of a 12% interest rate from the initial date of deposit.

Factual Matrix of the Dispute

The core of the dispute revolved around a sum of ₹15,00,000 that the assessee had deposited between August 2005 and October 2005 while a departmental investigation was underway. Eventually, the legal proceedings concluded favorably for the assessee, leading to the sanctioning of the refund for the deposited amount.

However, a conflict arose regarding the calculation and disbursement of interest on this refunded sum. The Commissioner (Appeals) took a restrictive approach, determining that only ₹1,18,073—which amounted to exactly 7.5% of the originally confirmed tax demand—qualified as a statutory pre-deposit under Section 35F of the Central Excise Act.

Based on this interpretation, the appellate authority sanctioned a nominal interest of merely ₹4,794. This calculation was strictly based on the statutory rate of 6% prescribed under Section 11BB of the Central Excise Act, computed only for the period starting three months after the refund application was filed. The authority completely denied interest on the remaining portion of the ₹15,00,000 and rejected the assessee's plea for compensation on the delayed payment of interest (commonly referred to as "interest on interest").

Submissions by the Assessee

Aggrieved by the restrictive order, the assessee approached the Tribunal, demanding interest at the rate of 12% per annum on the entire ₹15,00,000 from the exact date the funds were deposited until the date of actual realization. Furthermore, the assessee claimed entitlement to interest on the delayed payment of the interest component itself.