Authorities can’t have control over any amount paid as deposit or pre-deposit during investigation: CESTAT

Custom, Excise & Service Tax Appellate Tribunal, Chennai: In an appeal filed against order of rejecting refund of amount paid during investigation, the two-member Bench of Vasa Seshagiri Rao (Technical Member) and P. Dinesha (Judicial Member)* allowed the appeal and held that the authorities cannot have the control over any amount paid either as a deposit or pre-deposit or whatever mode during investigation. Holding the rejection of refund to be unsustainable, CESTAT further held that amount deposited by assessee during investigation could not be retained after demand of excise was set aside.

Background:

The appellant- Sri Coronation Fireworks Pvt. Ltd filed a refund claim of amount paid by them as pre-deposit during the progress of the investigation by DGCI, Coimbatore. Show Cause Notice was issued by the Additional Director General, DGGI, Coimbatore wherein in the payment of Rs.1,25,12,819 was clearly mentioned, with the description “paid by them voluntarily during the course of investigation” and the payment was further verified with the data available in ACES. Commissioner of Central Excise, Madurai passed the order, wherein the demand for Rs. 1,95,30,192 was confirmed against the appellant, and penalties were imposed on the appellant. Further in the order, the amount of Rs.1,25,12,819 paid by the appellant was appropriated against the duty paid by the appellant. Sri Coronation Fireworks Pvt. Ltd and Coronation Group of Companies filed appeals against the order before CESTAT, Chennai, and the appeals were allowed. The Appellant further approached the Deputy / Assistant Commissioner of GST & Central Excise, Sivakasi seeking a refund of an amount of Rs.1,25,12,819. The Adjudicating Authority sanctioned an amount of Rs.15,59,151 for payment of the refund calculated at 7.5% of the pre-deposit amount of Rs.14,64,764 with interest at 6% in terms of Section 35-F of Central Excise Act, 1944 (‘the Act’). The appellant claimed that the claimed amount was not examined, and the amount was calculated on recommendation of Range Officer indicating lack of application of mind. Aggrieved by the refund of the modest amount as against the actual payment made the first appeal was filed and further after rejection of a major portion of the refund claim the present appeal was filed.

Issues before the Tribunal

1. “Whether the Appellants are entitled to the refund amounts of Rs.1,25,12,819/-, Rs.1,42,26,800/- & Rs.95,00,000/- in respective Appeals paid by them during the course of investigation?

2. Whether the Appellants are entitled for interest on the above refund claims?”

Analysis, Law and Decision:

The Tribunal noted that the rejection of portion of refund claim was made apparently relying on the report of the Range Officer and also on Section 35-F the Act. It was further observed that Section 35-F of the Act refers only to the ‘deposit’ to be made while filing an appeal before the CESTAT and any amount deposited right from the stage of investigation before show cause notice or after passing of the Order-in-Original could also be adjusted towards such deposit to be made within the meaning of Section 35-F of the Act. The Tribunal noted that in the present case the issue was the refund of not only the deposit made in terms of Section 35-F of the Act, but also about the amount voluntarily paid by the appellant during investigation prior to the issuance of the show cause notice. The Tribunal observed that in accordance with law the Department cannot collect any amount without the authority of law and if the collection found without the authority of law, then the amount should not be retained. The tax authorities could pass an assessment order and only thereafter determine the tax liability, and any deposit or pre-deposit in whatever form made by an Assessee could be adjusted against the demand confirmed in the assessment /adjudication order. The Tribunal held that in present case the demand made was without authority of law, hence authorities could not have control over any amount paid either as a deposit or pre-deposit or whatever mode during investigation. The Tribunal relied on Team HR Services (P) Ltd. v. Union of India, 2020 (38) GSTL 457 (Del,) and held that the respondent cannot ignore to refund the entire amount of Rs.1,25,12,819, Rs.1,42,26,800 & Rs. 95,00,000 as tabulated above which, as held by the abovementioned judgment as violation of Article 265 of the Constitution of India. The Tribunal further held that the refund should be made at the interest of 6% in accordance with the Act. The Tribunal allowed the appeal and held that the rejection of refund was unsustainable.

[Sri Coronation Fireworks (P) Ltd. V. CCE & GST, 2025 SCC OnLine CESTAT 4266, decided on 19-12-2025]

Advocates who appeared in this case:

For the Appellant(s): M .Karthikeyan

For Respondent(s): M. Selvakumar, Authorised Representative