Pre-Adjudication Amount Paid Under Protest Is Deposit, Not Duty; CESTAT Allahabad Grants 12% Interest From Deposit

The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that, in the facts of the case, an amount paid under protest during investigation, before any adjudication or confirmed demand, cannot be treated as “duty” but only as a deposit. It ruled that interest on such a refund 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, a 100% export-oriented unit engaged in manufacturing cotton yarn. The dispute concerned interest on the refund of Additional Duty of Excise (Textiles & Textile Articles).

The company had paid Rs 22,30,445 on DTA clearances between 2000 and 2003 under protest, following repeated communications from the department. It maintained that the levy was exempt under Notification No. 55/91-CE.

After the unit was debonded in 2007, a refund claim was filed in June 2022 following reconstruction of records. 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.

Allowing the appeal, the tribunal held that the payment never acquired the character of duty. It observed:

“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.”

The bench noted that there was neither a quantified demand nor any adjudication determining liability at the time of deposit. It further observed:

“Once it is accepted that no duty was legally payable, the amount deposited under protest cannot be treated as 'duty' so as to attract the provisions of sections 11B and 11BB of the Central Excise Act.”

Relying on its earlier decision in Parle Agro, as affirmed by the Allahabad High Court, the tribunal held that Section 11BB applies only to the refund of duty and not to the refund of revenue deposits. In the absence of a prescribed statutory rate for such deposits, interest at 12% per annum was held appropriate.

The tribunal also observed that the retention of money without the authority of law would offend Article 265 of the Constitution. It directed the department to pay the balance interest of Rs 56,64,915 at 12% per annum from the date of deposit till the date of actual refund

For Appellant: Advocates Nishant Mishra and Bimal Jain

For Respondent: Authorized Representative, A. K. Choudhary