2006 (5) TMI 30 - AT - Central Excise

Central Excise No proposal in SCN to levy interest in terms of Rule 8(3) of CE Rules Duty paid prior to issuance of SCN interest and penalty not leviable

Summary

Issues:
1. Imposition of penalty and interest under Rule 25 of CE Rules and Section 11AB of CE Act.
2. Appeal against the Commissioner (Appeals) affirming interest as per Rule 8 (3) of CE Rules.

Analysis:

Issue 1: Imposition of Penalty and Interest
The Revenue issued a Show Cause Notice seeking to impose penalty under Rule 25 of CE Rules and interest under Section 11AB of CE Act. The Assistant Commissioner dropped the proceedings as the duty had already been paid by the appellants before the issue of the Show Cause Notice. The appellants also reversed the Cenvat credit. The Commissioner (Appeals) affirmed interest as per Rule 8 (3) of CE Rules, which was challenged by the appellants. They argued that based on previous judgments, when duty and Cenvat credit are paid before the issue of the Show Cause Notice, penalty and interest are not leviable. The Tribunal observed that there was no proposal in the Show Cause Notice to levy interest under Rule 8 (3) of CE Rules. Therefore, the Commissioner (Appeals) exceeded the terms of the notice by imposing interest. The Tribunal held that the levy of interest was not justified as the duty and Cenvat credit were paid before the notice, in line with the cited rulings. Consequently, the stay application and appeal were allowed.

Issue 2: Appeal Against Interest Imposed
The second ground of challenge was that the Show Cause Notice did not propose to levy interest as per Rule 8 (3) of CE Rules. The appellants contended that the Commissioner (Appeals) went beyond the terms of the notice by imposing interest. The Tribunal agreed with this argument, emphasizing that the absence of a proposal in the notice to levy interest under Rule 8 (3) of CE Rules meant that the Commissioner (Appeals) had overstepped his authority. The Tribunal concluded that the imposition of interest was not justified and needed to be set aside. The appellants succeeded in their appeal based on this ground and the previous payment of duty and reversal of Cenvat credit before the Show Cause Notice was issued.

In summary, the Tribunal found that the imposition of interest under Rule 8 (3) of CE Rules was unwarranted as there was no proposal to levy interest in the Show Cause Notice. Moreover, since the duty and Cenvat credit were already paid by the appellants before the issuance of the notice, the Tribunal ruled in favor of the appellants based on established legal precedents. The appeal was allowed, and the decision of the Commissioner (Appeals) to affirm interest was set aside.