Interest on Pre-Deposits under Section 35FF: Analysis of Jindal Drugs Limited Vs Commissioner of Central Excise (CESTAT Mumbai)

Background of the Dispute

The decision in Jindal Drugs Limited Vs Commissioner of Central Excise (CESTAT Mumbai) addresses a recurring controversy under the Central Excise regime: whether interest is payable on refund of pre-deposits made prior to the amendment of Section 35FF of the Central Excise Act, 1944, with effect from 06.08.2014.

The assessee, a manufacturer of cocoa powder and cocoa butter, had been directed by the Hon’ble Bombay High Court to make a substantial pre-deposit while its central excise dispute was pending. This later resulted in a refund issue, specifically regarding entitlement to interest on the refunded amount.

Business Profile and Original Litigation

  • The assessee was engaged in manufacturing Cocoa Powder/Cocoa Butter under Chapter sub-heading Nos. 1804 0000 and 1805 0000 of the Central Excise Tariff Act, 1985.
  • During the course of central excise proceedings, the Hon’ble Bombay High Court, by order dated 13.03.2014, granted stay and remanded the matter to the Tribunal, subject to:
    • Cash deposit of Rs. 4,00,00,000/-, and
    • Furnishing a Bank Guarantee of Rs. 9.40 crores.

In compliance, the assessee deposited Rs. 4 crores on 21.04.2014 through a challan with the Department.

Subsequently, a Co-ordinate Bench of the Tribunal, by Final Order dated 16.04.2015, allowed the appeal of the assessee, holding that:

  • The activity undertaken in relation to cocoa butter received from its Jammu unit and processed at its MIDC-Taloja, Panvel factory amounted to manufacture under the Central Excise law.
  • The assessee was entitled to:
    • CENVAT credit of central excise duty paid on inputs from the Jammu unit, and
    • Rebate of central excise duty on export of final products, wherever applicable.

Consequent to this favourable order, the assessee became entitled to refund of the pre-deposit.

Refund Sanction and Departmental Review

Order-in-Original Granting Refund with Interest

Pursuant to the Tribunal’s order, the Deputy Commissioner of Central Excise, Kalamboli Division, Raigad Commissionerate passed an Order-in-Original dated 18.06.2015, sanctioning a total refund of Rs. 4,27,74,795/-, comprising:

  • Principal pre-deposit: Rs. 4,00,00,000/-, and
  • Interest @ 6%: Rs. 27,74,795/-.

The interest was granted treating the case as covered by the amended Section 35FF, which provides for interest from the date of deposit till the date of refund.

Intervention by the Principal Commissioner

The Principal Commissioner subjected the Order-in-Original to review. The Department took the stand that:

  • The amended Section 35FF, effective from 06.08.2014, applies only to pre-deposits made on or after that date.
  • Since the assessee deposited the amount on 21.04.2014, the case was governed by the unamended provision.
  • The proviso inserted in the amended Section 35FF specifically protects earlier deposits from the operation of the new rule on interest.

Accordingly, the Deputy Commissioner was instructed to prefer an appeal before the Commissioner (Appeals) against the grant of interest.

Order of the Commissioner (Appeals)

On appeal by the Department, the Commissioner (Appeals), by Order-in-Appeal No. CD/389/Bel/2016 dated 02.03.2016, held: