Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(CESTAT) 1591

Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO.1

Excise Appeal No. 11405 of 2025-SM
(E/MISC/10641/2025)

(Arising out of Order in Appeal CCESA-SRT-APPEAL-RHM-83-2025-26 Dated 18/07/2025
passed by the Commissioner, Central GST & Central Excise (Appeals), Surat)

SPRING MERCHANDISER PVT LTD ........Appellant
Survey No. 170/1/(12), Shed No. 03,
Panchal Udhyog Nagar, Bhimpore-396210
VERSUS
COMMISSIONER OF CGST &
CENTRAL EXCISE - DAMAN ........Respondent
Customs and Service Tax, Daman,
5th Floor, GST Bhavan, RCP Compound,
Vapi, Valsad, Gujarat- 396191

APPEARANCE:
Shri Samyak Jain, Advocate appeared for the Appellant
Smt. Sunita Menon, Superintendent(AR) appeared for the Respondent

CORAM:
HON'BLE MR. SOMESH ARORA, MEMBER ( JUDICIAL )

FINAL ORDER NO. 10311/2026
DATE OF HEARING :23.04.2026
DATE OF DECISION:24.04.2026

Advocates:
For the Appellants/Petitioners: Samyak Jain
For the Respondents: Sunita Menon

Deposits made during investigation are not 'duty' under Section 11BB of the Central Excise Act; therefore, assessees are entitled to interest at 12% on such deposits as equitable compensation for the time value of money, though no interest on interest is admissible.

Headnote:(A) Central Excise Act, 1944 - Section 11BB - Interest on delayed refunds - Pre-deposit during investigation - Whether amounts deposited during investigation are governed by statutory interest provisions or equitable principles - Held, deposits made during investigation do not partake the character of duty and are not strictly governed by Section 11BB of the Act, but are subject to the principle of compensation for loss of use of funds - Following judicial precedents, interest @ 12% per annum is payable from the date of deposit till the actual date of refund. (Paras 5, 5.2)

(B) Interest on interest - Admissibility - Whether an assessee is entitled to interest on the interest amount delayed by the Revenue - Relying on Supreme Court judgements, held that statutory interest as per statute and equitable interest at 12% are admissible, but no interest on interest is permitted. (Para 5.2)

Facts of the case:
The appellant deposited ₹15,00,000/- during the investigation stage between August and October 2005. After proceedings concluded in their favour, the authorities refunded the principal amount but restricted interest to a minor sum of ₹4,794/- under Section 11BB, treating the deposit as a statutory pre-deposit under Section 35F of the Act.

Findings of Court:
The Court held that amounts deposited during investigation are not strictly governed by the constraints of Section 11BB and the appellant is entitled to interest at 12% per annum from the date of deposit until the date of refund, as compensation for the withholding of funds by the State. The Court rejected the claim for "interest on interest".

Issues: Whether the refund of deposits made during investigation should be restricted to the statutory interest prescribed under Section 11BB, and whether the appellant is entitled to interest on interest.

Ratio Decidendi: Deposits made during investigation are not "duty" within the meaning of Section 11BB; therefore, principles of equity and compensation for deprivation of funds apply, justifying a 12% interest rate, while interest on interest remains inadmissible under law.

Result: Appeal allowed.

SOMESH ARORA

1. The appellants are aggrieved by the decision of the Commissioner (Appeals), who, while permitting the refund of ₹15,00,000/- deposited by them during the period from August 2005 to October 2005—pursuant to proceedings, which ultimately concluded in their favour—restricted the grant of interest. The Commissioner (Appeals) treated only an amount of ₹1,18,073/- (being 7.5% of the confirmed demand) as a pre-deposit under Section 35F of the Central Excise Act and allowed interest only on this limited amount. Consequently, interest of merely ₹4,794/- was granted, without extending interest on the entire refunded amount of ₹15,00,000/- for the period from the date of deposit till the date of refund. Further, no interest on the delayed payment of interest (i.e., interest on interest) was allowed. The relevant portion of the impugned order is reproduced below:-

“6. From the facts narrated above, it is observed that the refund sanctioning authority/adjudicating authority while granting refund of Rs.15,00,000/- vide impugned order, relied on the statutory provisions regarding interest on refund amount and date of refund application. The appellant has contended that they are eligible for interest @12% p.a. as mentioned in judicial pronouncement in case of Indo Rubber and Plastic Works Versus Commr. of Customs, New Delhi, PR. Commr of CGST, New Delhi Versus Emmar Mgf. Construction Pvt. Ltd. In this regard, I observe that the Central Excise/Service Tax authorities can only process the refund clam under provisions of Central Excise Act/Finance Act and the departmental authorities have no jurisdiction to go beyond the provisions made under the Act and the matter relating to interest on delayed refunds, as in the instant case, has to be dealt with under the provisions of Section 11BB of the Central Excise Act, 1944 (CEA), which are reproduced as under:

Section 11BB. Interest on delayed refunds,-

If any duty ordered to be refunded under sub-section (2) of section 11B to any applicant is not refunded within three months from the dote of receipt of application under sub section (2) of that section there shall be paid to that applicant interest of such rate, not below five per cent and not exceeding thirty per cent per annum as is for the time being fixed by the Central Government, by Notification in the Official Gazette, an such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty

Provided that where any duty ordered to be refunded under sub section (2) of section 11B in respect of on application under sub-section (1) of that section made before the date on which the Finance Bill, 1995 receives the assent of the President, is not refunded within three months from such date, there shall be paid to the applicant interest under this section from the date immediately after three months from such date, till the date of refund of such duty.

Explanation.- Where any order of refund is made by the Commissioner (Appeals) Appellate Tribunal National Tax Tribunal or any court against an order of the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise, under sub-section (2) of section 11B, the order passed by the Commissioner (Appeals), Appellate Tribunal, National Tax Tribunal or, as the case may be, by the court shall be deemed to be an order passed under the said sub-section (2) for the purposes of this section.

From the plain reading of the above provision, I find that Section 11BB of CEA provides for both the rate of interest as well as period of interest The rate of interest is as fixed by the central government by notification in official gazette and the period of interest is, from the date immediately after the expiry of three (03) months from the date of receipt of application for refund claim, to the date of refund.

7. In view of above, I also find that the Sanctioning authority and Commissioner (Appeals) are cre

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