February 03, 2026 : The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal has ruled that an assessee cannot claim interest at 12 percent on excise refunds as a matter of right, holding that interest on delayed refunds must strictly follow the statutory framework laid down under Section 11BB of the Central Excise Act, 1944.
Dismissing the appeal filed by M/s Sheela Foam Ltd., the Tribunal made it clear that equitable considerations cannot override express statutory provisions, particularly in fiscal matters where the law prescribes both the conditions and the rate of interest.
The Bench, comprising Sanjiv Srivastava, Technical Member, observed that the refund in question arose under the statutory scheme governing central excise duty and could not be treated as a mere revenue deposit to justify a higher rate of interest.
Sheela Foam Ltd., engaged in the manufacture of PU foam mattresses classifiable under Chapter 39 of the Central Excise Tariff Act, 1985, was availing CENVAT credit under the CENVAT Credit Rules, 2004. In August 2009, a fire accident at its factory destroyed semi-finished and finished goods. The company duly informed the excise authorities and reversed CENVAT credit amounting to ₹41.01 lakh attributable to the inputs used in the destroyed goods.
The assessee subsequently applied for remission of duty under Rule 21 of the Central Excise Rules, 2002. The Department rejected the claim, confirmed a duty demand of ₹40.97 lakh with interest, and also demanded interest on the reversed CENVAT credit. This triggered prolonged litigation.
Ultimately, by Final Order dated 2 August 2022, read with a Miscellaneous Order dated 16 November 2023, the Tribunal held that the assessee was entitled to a refund of ₹35,60,087. Acting on this decision, Sheela Foam Ltd. filed a refund application on 13 December 2023.
The Commissioner (Appeals), CGST, Noida sanctioned the refund along with interest at the rate prescribed under Section 11BB of the Central Excise Act, payable from the date of deposit until the date of actual refund. Dissatisfied with the rate of interest, the assessee approached the Tribunal seeking interest at 12 percent per annum, arguing that the refunded amount was in the nature of a revenue deposit rather than excise duty.
To support its claim, the appellant relied on a series of Tribunal decisions, including Parle Agro Pvt. Ltd., Continental Engines Pvt. Ltd., and Indore Treasure Market City (P) Ltd., which had drawn upon the Supreme Court’s ruling in Sandvik Asia Ltd. to award higher interest on delayed refunds. The appellant contended that the prolonged retention of funds by the Department entitled it to compensatory interest at 12 percent.
The Tribunal rejected this argument. It held that the amount reversed by the assessee represented central excise duty attributable to inputs contained in goods destroyed by fire. Since remission was sought and ultimately granted under Rule 21, the resulting refund clearly fell within the scope of Section 11B of the Central Excise Act. As a consequence, interest on any delayed refund was governed exclusively by Section 11BB.
The Bench emphasised that the principles applicable to refunds of amounts deposited during investigation or pre-deposit proceedings could not be imported into a case involving refund of excise duty under the statutory remission mechanism.
Placing reliance on the Supreme Court’s decision in Willowood Chemicals Pvt. Ltd. (2022), the Tribunal noted that the ruling in Sandvik Asia Ltd. cannot be treated as laying down a general rule for awarding interest beyond statutory limits. The apex court had clarified that Sandvik Asia was decided in the context of extraordinary and inordinate delays spanning several years, and that where the legislature has expressly prescribed the rate of interest, courts and tribunals must adhere to it.
Reiterating that fiscal statutes must be strictly construed, the Tribunal held that when the statute specifies the rate and conditions for payment of interest, there is no scope to enhance the rate on equitable grounds. It concluded that interest on the refund was rightly restricted to the rate notified under Section 11BB of the Central Excise Act.
Accordingly, the appeal filed by Sheela Foam Ltd. was dismissed, and the order of the Commissioner (Appeals) granting interest only at the statutory rate was upheld. The Tribunal held that no vested right exists to claim a higher rate of interest on excise refunds.
