High Court has awarded interest @ 12% p.a. on excessive excise duty refunded after twelve years after petitioners was compelled to deposit it.
In a recent judgment, Rajasthan High Court has awarded interest @ 12% p.a. on the excise duty refunded after twelve years to compensate for the unjust hardship suffered for compelled to deposit excess exsice duty.
ABCAUS Case Law Citation:
5015 (2026) (01) abcaus.in HC
Important Case Laws relied upon by Parties:
Swastik Metals Vs. Union of India
Redihot Electricals Vs. Union of India and Ors
Mafatlal Industries Ltd. Vs. Union of India
In the instant case, the Petitioner/assessee had challenged the order passed by the Assistant Commissioner, CGST rejecting petitioner’s claim for interest on an excess amount of excise duty paid and refunded after the lapse of twelve years.
The petitioner was a manufacturer of corrugated boxes with a factory at Rajasthan. A team of the Anti Evasion Wing of the erstwhile Central Excise Commissionerate, visited the factory for investigation. On the basis of records seized, statements recorded from the proprietor, and investigation done, it was found that petitioner was incorrectly claiming the small-scale exemption for up to a turnover of Rs. 1.50 crore, by not including the turnover of its other two units.
The investigating team asked petitioner to deposit the Central Excise duty of around Rs. 30 lakhs, as the combined turnover exceeded the threshold of Rs. 1.50 crore for exemption. Thus, petitioner was compelled to deposit the alleged Central Excise duty. In addition, petitioner had also deposited a concessional penalty and interest on the duty amount. Subsequently, a show-cause notice was issued proposing a demand along with interest and penalty.
The Petitioner contested the said demand, arguing that the manufacturing turnover of one Unit was double-counted due to the improper inclusion of stock transfers from the Delhi unit, and requested a re-computation.
The appeal before the Commissioner of Central Excise (Appeals) was rejected. The CESTAT remanded the matter back to the adjudicating authority to arrive at the correct value of clearance after eliminating the stock of the finished goods transferred.
In remanded proceedings, the Additional Commissioner, CGST granted refund of the excess excise duty however, refused to grant interest on the excess excise duty collected, citing the provisions of Section 11BB read with Section 35FF of the Central Excise Act, 1944 (the Act of 1944).
Before the Hon’ble High Court, the Petitioner relied on the judgments of the Hon’ble High Court and Hon’ble Supreme Court and submitted that this Court should award interest from the date of collection till the date of actual payment and provisions of Section 11BB of the Act of 1944, cannot be an impediment. Petitioner, in fact, was entitled to be compensated in the form of interest.
The Hon’ble High Court observed that it was an undisputed fact that petitioner’s contention was finally upheld in his allowed the appeal in favour of the assessee  and liability determined was much less than the amount the Petitioner was compelled to deposit. In addition, petitioner had also deposited a concessional penalty and interest on the duty amount.
The Hon’ble High Court observed that it was evident from the record that petitioner was forced to pay the excess excise amount from their meager source, and that Department had collected the same, retaining and enjoying the benefits of this money for an extended period of time without any lawful authority. Thereafter, the argument advanced that petitioner was not entitled to any interest cannot be accepted in the teeth of the judgment of the Hon’ble Apex Court.
The Hon’ble High Court noted that from the judgments relied upon by petitioner it was eveident that social justice is a pervasive presence and so, save in special situations, it is fair to be guided by the strategy of equity. Interest is the return or compensation for the use or retention of another’s monies. Petitioner paid the amount from its meagre resources. Petitioner would have perhaps even borrowed money to pay. Respondents have collected, retained and enjoyed the benefits of this money for a sufficiently long time without the authority of law. Petitioner had to run from pillar to post to get his money.
The Hon’ble High Court opined that in view of the facts and the law propounded in the said judgments, it was evident that the very collection and retention of excess excise duty by respondents was without the authority of law; therefore, respondents were under a statutory obligation to refund the same with interest from the date of actual deposit.
Therefore, the Hon’ble High Court held that rejection of the interest on the excess excise duty claim in the impugned order was unsustainable in the eyes of law. Accordingly, the impugned order to the extent of denying the claim of interest on the excess excise duty was quashed and set aside.
The Hon’ble High Court further observed that petitioner had deposited this excessive excise duty before 12 years and had petitioner utilised the refund amount for his working capital, petitioner would have multiplied the same much more than the interest @ 12% p.a. Therefore, in order to compensate petitioner for the unjust hardship suffered at the hands of arbitrary action by respondents, the Hon’ble High Court awarded interest @ 12% p.a. on the refund amount.
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