The court ruled that interest is payable on delayed refund of pre-deposit after three months from the application date, as pre-deposits do not equate to duty or penalty payments.

JUDGMENT :

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned advocate Mr.Sudhanshu Bissa for learned advocate Mr. Paresh Dave for the appellant and learned advocate Mr. Deepak Khanchandani for the respondent.

2. This appeal is filed under Section 130 of the Customs Act, 1962 (for short ‘the Act’) arising out of Final Order dated 23.11.2007 passed by the Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad (for short “the CESTAT’) in Appeal No. C/6/2007.

3. This Court by order dated 25.1.2008 admitted the appeal in terms of the following question:

“Whether the Revenue was liable to pay interest on delayed refund of pre-deposit of penalty amount when such pre-deposit was not returned/ refunded to the appellant within three months after the appeal was allowed in favour of the appellant?”

4. Brief facts of the case are as under:-

4.1 The appellant company is, inter alia,engaged in the business of manufacture of products like Soda Ash. The appellant imported certain machineries which was subjected to some dispute on valuation. The Commissioner of Customs, Kandla adjudicated the case in 1991 confirming differential duty of Rs.1,46,68,637.76 and imposed penalty of Rs.50 lakh.

4.2 Being aggrieved, the appellant filed an Appeal and Stay Application before the CESTAT. While deciding the Stay Application, the CESTAT ordered the appellant to pre-deposit a sum of Rs. 10 lakh vide order dated 19.2.1992. The amount was deposited with Commissioner of Customs, Kandla. The CESTAT finally decided the Appeal vide final order dated 13.5.1994 and the penalty was set-aside. The appellant filed claim for return of the pre-deposit in January, 1997 after various litigation

4.3 The respondent refunded the amount of pre- deposit on 9.7.2002 without payment of interest. The appellant, therefore, approached adjudicating authority and claimed interest on pre-deposit of penalty which was belatedly returned, after 3 months from the date of filing of the application in January, 1997 till the date of payment.

4.4 The adjudicating authority rejected the claim of interest made by the appellant. The appellate preferred an appeal before Commissioner (Appeals) who by order dated 30.12.2005 held that under the provisions of the Customs Act, the appellant is not entitled to get the refund on delayed payment of pre-deposit.

4.5 Being aggrieved, the appellant preferred an appeal before the CESTAT. The CESTAT, after considering the submissions made by the Appellant vide order dated 23.11.2007, held as under:

“6.1 I have carefully considered the submissions from both sides. The duty requires being collected strictly as provided by law. In practice, there could be cases of excess collection or short collection due to various reasons. The provisions for demand of duty short levied or not levied or short paid etc. from the assessee by the department and the provisions for claim for refund by the assessee from the department when there are excess payment or payment made when not required are reciprocal provisions.

6.2 The interest, as rightly pointed out by the learned advocate, is somewhat compensatory in nature. However, the interest becomes demandable by the department and payable by the department in terms of specific provisions of statute.

6.3 The provisions relating to confiscation and penalty are penal in nature. If a person, on whom a penalty is imposed, does not pay immediately and pays, say after a few years, as of now, the department has no powers to collect of interest on such delayed payment of penalty. Reciprocally, penalty imposed on a person was paid either fully or partly by that person and the same was set aside or re