2015 (11) TMI 249 - AT - Central Excise

Denial of a refund of the interest recovered by the revenue - delayed payment of duty which was later found as not sustainable - Held that - if at all, there is any short payment of duty, the mandate of law is that a show cause notice is required to be issued as per section 11 AC of the Act which Department has failed to do so. Therefore, without issuance of the show cause notice, demand of duty cannot be confirmed against the appellant and consequently be recovered from the appellant. In case when demand is not sustainable question of payment of interest does not arise. In this case demand of interest has been confirmed against the appellant for delayed payment without issuance of the show cause notice. Therefore, demand of interest is not sustainable. Consequently, the interest recovered from the appellant is to be refunded. - no show cause notice has been issued to the appellant. Therefore, adjustment of demand of interest is not permissible. In these terms, the impugned order deserves no merits. Hence same is set aside. - Decided in favour of assessee.

Summary

Issues:
Refund of interest recovered by the revenue for alleged short payment of duty on tobacco manufacturing machines during July to September 2010.

Analysis:
The appellant, a tobacco manufacturer, appealed against the denial of a refund of interest recovered by the revenue for alleged short payment of duty on tobacco manufacturing machines. The appellant paid duty on a pro rata basis for the periods when the machines were functional in July, August, and September 2010. The appellant later filed an abatement claim for the period when the machines were closed, seeking a refund of the interest charged for late payment. The Adjudicating Authority sanctioned the abatement claim but did not refund the interest charged. The appellant contended that as no show cause notice was issued for short payment of duty, the interest recovery was unwarranted. The appellant cited relevant case laws to support their argument.

The revenue opposed the appellant's claim, arguing that duty should have been paid in full on the 5th of every month as per the rules. The revenue asserted that the appellant should have filed an abatement claim for the period of machine closure instead of paying duty only for the periods when the machines were operational. The revenue contended that interest for delayed payment was justified under section 11 AC of the Act, especially considering the specific rules for tobacco manufacturing.

Upon hearing both parties, it was established that the appellant had duly informed the Department about the machine closures and paid duty on a pro rata basis. As no show cause notice was issued for any alleged short payment of duty, the demand for duty and subsequent interest recovery were deemed unsustainable. The Tribunal held that without following due process, including issuing a show cause notice, the demand for interest could not be upheld. The Tribunal relied on relevant case laws emphasizing the necessity of natural justice and the issuance of show cause notices before confirming demands. Consequently, the Tribunal set aside the impugned order, allowed the refund claim of interest, and ruled in favor of the appellant.

In conclusion, the Tribunal's decision favored the appellant, emphasizing the importance of due process and adherence to natural justice principles in tax matters, particularly in cases involving duty payments and interest recovery for manufacturing activities like tobacco production.