Revenue Deposits Made Under Protest Cannot Be Treated As “Duty” For Limiting Interest: CESTAT Allahabad

The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 25 June held that excess amounts deposited under protest during provisional assessment cannot be treated as “duty” and remain revenue deposits until a duty liability is adjudicated.

Judicial Member P. K. Choudhary allowed an appeal filed by Maa Vindhyavasini Tobacco Pvt. Ltd, set aside the impugned order, and directed the Department to recalculate interest at 12% per annum from the respective dates of deposit until 11 March 2024, after adjusting the interest already paid. He held:

“the amount deposited by the Appellants 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. Once it is held that the refunded amount does not partake the character of 'duty', the statutory provisions governing refund of duty, including Sections 11B and 11BB of the Central Excise Act, cease to have any application.”

The dispute arose from the classification of chewing tobacco products. During the provisional assessment period, Maa Vindhyavasini Tobacco deposited excess amounts under protest by adopting a higher basis of assessment.

The classification dispute was eventually decided in the taxpayer's favour, and the Department refunded the excess amount of Rs. 6.95 crore. However, it granted interest only at 6% and calculated it from three months after the filing of the refund application.

Maa Vindhyavasini Tobacco challenged the order, contending that the amount deposited was never excise duty but merely a revenue deposit made under protest. It argued that the Department could not invoke the provisions governing refund of duty to restrict the interest payable.

Accepting the contention, the Tribunal held that no adjudicated or quantified duty liability existed when the deposits were made. It observed that payments made under protest during provisional assessment retained the character of revenue deposits and could not subsequently be treated as duty merely to limit the Department's liability to pay interest.

Referring to Hindustan Mint and Agro Products Pvt. Ltd., the the Bench further observed:

“as per Article 300A of the Constitution of India, no person shall be deprived of his property, save by authority of law, and that any interest accrued or due on money wrongfully withheld remains the property of the owner. Allowing the state to retain such funds and deny rightful interest would amount to unjust enrichment at the expense of the citizen”.

It also emphasised that once the authorities accepted that the amount was not legally payable as duty, the Government could not retain a citizen's money without the authority of law or deny appropriate compensation for its wrongful retention.

Accordingly, the CESTAT directed the Department to pay interest at 12% per annum from the respective dates of deposit until 11 March 2024, after adjusting the interest already paid, and to release the balance amount within 60 days.

For Appellant: Shri S. R. Agarwal, Advocate, Mrs. Stuti Saggi, Advocate & Shri Sachin Shukla, Advocate 

For Respondent: Shri Prashant Kumar & Shri Abhishek Mukherjee, Authorized Representative