Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(CESTAT) 469

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
K. Anpazhakan, Technical Member
Kamala Metachem – Appellant
Versus
Commissioner of Customs – Respondent
Customs Appeal No. 75083 of 2025

Advocates:
For the Appellants/Petitioners: Indranil Banerjee
For the Respondents: Tariq Sulaiman

Amounts deposited during investigation under a mistaken notion of liability are considered pre-deposits rather than duty. Upon the subsequent dropping of proceedings, the revenue is obligated to refund such amounts along with interest, as the withholding of non-liable funds constitutes a wrongful deprivation.

Headnote:(A) Customs Act, 1962 - Section 27 - Finance Act, 1994 - Section 83 - Central Excise Act, 1944 - Section 11B - Refund of pre-deposit - Interest on delayed refund - Whether interest is payable on amounts deposited during investigation when the underlying liability is dropped - Amounts deposited during investigations under a mistaken notion of liability do not constitute duty of excise or service tax - Such payments are considered pre-deposits; therefore, the limitation and conditions under Section 11B of the Central Excise Act are not applicable - Interest at 12% per annum is awarded from the date of deposit until the date of actual refund. (Paras 6.4, 6.7, 9, 12)

(B) Interest on Refund - Justification - Withholding of money by the authorities for an inordinate period without legal basis is wrongful - Revenue cannot justify the retention of monies paid under a mistake of law - Absence of express statutory provision in the parent Act does not preclude the claimant from interest, as the amount belongs to the assessee. (Paras 6.8, 8, 9)

Facts of the case:
An exporter paid an amount during the course of an investigation under the mistaken belief of duty liability. Following an appellate order that dropped the proceedings against the party, the latter filed for a refund of the deposited amount. The refund was sanctioned but without payment of interest, leading to the current appeal against the denial of interest on such refund.

Findings of Court:
The court found that the deposit made during the investigation was not a voluntary payment of duty but a deposit under a mistake of law. Consequently, the restrictive provisions usually applicable to statutory refunds of duty do not apply. The court reaffirmed that interest is automatically payable on such pre-deposits when the claim for the principal amount is allowed.

Issues: The central issues were whether a deposit made during an investigation constitutes 'duty' subject to statutory limitation and whether the claimant is entitled to compensatory interest at 12% per annum upon the refund of such amount.

Ratio Decidendi: The court maintained that when an amount is paid under a mistaken belief of liability and the demand is subsequently quashed, the revenue holds the money without authority. Since the payment was not a 'duty' as defined under the relevant law, the bar of statutory limitation for refund applications is inapplicable, and the assessee is entitled to interest as compensation for the wrongful withholding of funds.

Result: Appeal allowed; the appellant is held entitled to interest at the rate of 12% per annum from the date of deposit until the date of refund.

Table of Content
1. process of refund application and subsequent appeal against non-payment of interest. (Para 2 , 3)
2. parties' contentions regarding the nature of pre-deposit versus voluntary duty payment. (Para 4 , 5 , 6)
3. characterization of investigation deposits as non-voluntary payments made under mistake. (Para 7 , 8 , 9)
4. precedent establishment for eligibility of interest on investigation deposits. (Para 10 , 11)
5. order setting aside interest denial and mandate for 12% interest payment. (Para 12 , 13)

ORDER:

The present appeal has been filed by M/s. Kamala Metachem, 7A, Late Tapan Chowdhury Avenue, Kolkata – 700 026 [hereinafter referred to as the “appellant”] against the rejection of their request for grant of interest on the refund sanctioned to them under the Customs Act, 1962 by the Ld. Commissioner of Customs (Appeals), 3rd Floor, Custom House, 15/1, Strand Road, Kolkata – 700 001 vide the Order-in Appeal No. KOL/CUS/Port/KS/657/2024 dated 19.11.2024.

2. The brief facts of the case are that the appellant had paid an amount of Rs.7,50,000/- during the course of investigation in respect of imports of “Zinc Skimming” during the period from July, 2003 to December, 2003.

2.1. Thereafter, after due process of law, the matter reached this Tribunal and this Tribunal vide Final Order No. 76162 of 2023 dated 13.07.2023 has dropped the proceedings raised against the appellant.

2.2. Pursuant to the above order passed by the CESTAT, the appellant filed a refund application vide Sevottam Receipt No. 010368 dated 24.08.2023 seeking refund of the amount of Rs.7,50,000/- deposit during the course of investigation for the above period.

3. The Ld. Assistant Commissioner of Customs, Appraising Refund Section (Port), Custom House, Kolkata, vide the Order-in-Original No. KOL/CUS/AC/ARS (Port)/391/2024 dated 07.06.2024 has adjudicated the above refund application filed by the appellant and sanctioned the refund of Rs.7,50,000/- in favour of the appellant herein under the provisions of Section 27 of the Customs Act, 1962. However, the issue of grant of interest in respect of the above refunded amount was not discussed by the ld. refund sanctioning authority in the above order.

3.1. Accordingly, an appeal was preferred by the appellant before the Ld. Commissioner of Customs (Appeals), Custom House, Kolkata, who, by way of the impugned order dated 19.11.2024, has rejected the appeal filed by the appellant and upheld the non sanction of interest on the amount refunded to the appellant vide the order dated 07.06.2024.

3.2. Aggrieved by the aforesaid order, the appellant has filed the instant appeal.

4. The Ld. Counsel appearing on behalf of the appellant submits that the lower authorities have failed to acknowledge the fact that the payment of Rs.7,50,000/- by the appellant during the course of investigation, had been made at the insistence of the Customs Department; that consequent to passing of the CESTAT Order dated 07.06.2024, such amount became refundable to the appellant, along with interest thereon from the date of such deposit till the date of refund. Accordingly, he submits that the appellant is eligible for interest at the rate of 12% on the above amount refunded to them from the date of deposit till the date of refund, as held in a catena of decisions on the issue. In support, he relies on the following case-law: -

i. Falcon Exports v. Commissioner of Customs (Port), Kolkata [Final Order No. 76922 of 2025 dated 15.07.2025 in Customs Appeal No. 75940 of 2025 – CESTAT, Kolkata]

ii. M/s. Harrisons Industries v. Commissioner of Commissioner of C.G.S.T. and Central Excise, Kolkata North [Final Order No. 76670 of 2025 dated 03.07.2025 in Service Tax Appeal No. 76006 of 2024 – CESTAT, Kolkata] (affirmed by the Hon’ble High Court at Calcutta in CEXA/1/2026 on 20.02.2026]

5. On the other hand, the Ld. Authorized Representative of the Revenue opposed the sanction of interest on the amount refunded to the appellant on the ground that

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2026 Supreme(Online)(CESTAT) 469

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNALK. Anpazhakan, Technical MemberKamala Metachem – AppellantVersusCommissioner of Customs – RespondentCustoms Appeal No. 75083 of 2025

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
K. Anpazhakan, Technical Member
Kamala Metachem – Appellant
Versus
Commissioner of Customs – Respondent
Customs Appeal No. 75083 of 2025