• Dated 30^th September, 2026

Interest on Delayed Refund is Payable from Three Months after Electronic Filing of Refund Claim; Interest Claim Not Time-Barred: CESTAT Chennai

BRIEF FACTS:

The Assessee, a manufacturer of coconut oil, was involved in a dispute regarding the classification and excisability of coconut oil packed in containers of up to 200 ml. Pursuant to the Department's direction, the Assessee started paying Central Excise duty under protest from 2011 and simultaneously filed refund claims electronically through the ACES portal. Subsequently, the Hon'ble Madras High Court, vide order dated 29.04.2014, held the relevant CBEC Circular to be ultra vires. Thereafter, the Department required the Assessee to file refund claims in the prescribed physical Form 'R', which were received on 06.02.2015. The refunds were sanctioned on 05.05.2015. The Assessee subsequently claimed interest under Section 11BB of the Central Excise Act, 1944, contending that the period of three months should be reckoned from the dates of the electronic refund claims filed contemporaneously with the protest payments. The Department rejected the claim, contending that the refund became due only after the High Court's order and that the complete refund applications were filed only in Form 'R' in February 2015.

ASSESSEE'S CONTENTION:

The Assessee contended that interest under Section 11BB is a statutory and automatic obligation and does not depend upon a separate claim for interest. It was submitted that the electronic refund claims had been received by the Department without any objection or deficiency memo and therefore constituted valid applications from the dates of their electronic filing. The subsequent filing of Form 'R' was only pursuant to the Department's instructions and did not alter the original date of filing. It was further contended that there was no delay or laches on the part of the Assessee in pursuing the refund claims. The subsequent letter seeking interest was merely a reminder of the statutory entitlement and could not be treated as a fresh refund claim subject to limitation.

DEPARTMENT'S CONTENTION:

The Department contended that the electronic claims filed during the pendency of the dispute were premature, since the entitlement to refund had not crystallised until the Hon'ble Madras High Court passed its order dated 29.04.2014. It was argued that the proper refund applications were those filed in Form 'R' and received on 06.02.2015, and since the refunds were sanctioned within three months thereafter, no interest was payable. The Department also contended that the interest claims were hit by delay and laches and relied upon the "relevant date" prescribed under Section 11B to contend that the refund process could be reckoned only from the subsequent stage.

DECISION:

The CESTAT Chennai held that Section 11BB casts a statutory obligation upon the Department to pay interest on delayed refunds and that such interest is payable automatically where the refund is not sanctioned within three months from the date of receipt of the refund application. The Tribunal held that the subsequent letter seeking interest was merely a reminder of an obligation arising by operation of law and was not a fresh claim giving rise to a separate limitation period. Accordingly, the allegation of delay and laches was rejected and the interest claim was held not to be time-barred. The Tribunal further held that the electronic refund claims filed contemporaneously with the protest payments, having been received by the Department without objection or issuance of a deficiency memo, were valid applications under Section 11B(1). The subsequent filing of Form 'R' was only a physical reiteration of the claims already on record and could not be treated as the date from which the interest period commenced. The Tribunal also held that the "relevant date" under Explanation (B) to Section 11B governs the period within which a refund claim may be filed and does not determine the commencement of interest under Section 11BB. Accordingly, the impugned orders were set aside and the matter was remanded only for verification of the actual dates of receipt of the electronic claims and quantification of interest from three months thereafter until the date of sanction of refund.

BTA's COMMENT:

The decision reiterates that interest under Section 11BB is a statutory consequence of delayed sanction of refund and is not dependent upon a separate claim being made by the assessee. Significantly, the Tribunal also rejected the plea of delay and laches, thereby recognising that the interest entitlement was not time-barred merely because the claim for interest was raised subsequently. The ruling further clarifies the distinction between the "relevant date" for determining the limitation period for filing a refund claim under Section 11B and the date of receipt of the refund application for computing interest under Section 11BB. Where a refund claim has already been filed and received by the Department without issuance of a deficiency memo, a subsequent physical filing cannot shift the date for computation of statutory interest.

Case Reference- M/s. V.V.D and Sons Pvt. Ltd. v. Commissioner of GST & Central Excise, Madurai, Excise Appeal Nos. 40298-40301 of 2020, Final Order Nos. 41006-41009/2026, CESTAT Chennai, decided on 08 September 2026.

Author- Shristy Pathak

Edited by- Madhurima Bose