2017 (10) TMI 1034 - AT - Central Excise

Refund of the interest recovered by the revenue - interest paid for late payment of duty for the month of July, 2010 to September, 2010 - denial of refund on the ground that the interest was payable in respect of duty late deposited for the month of July, 2010 to September, 2010 as per provisions of Rule 9 of Chewing Tobacco and Un-manufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 - Held that - 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 - adjustment of demand of interest is not permissible - refund of interest allowed - appeal allowed - decided in favor of appellant.

Issues:
- Refund of interest recovered by the revenue for late payment of duty.
- Applicability of Chewing Tobacco and Unmanufactured Tobacco Packing Machines Rules, 2010.
- Requirement of show cause notice for confirming duty demand.
- Applicability of interest payment and issuance of show cause notice in case of tobacco manufacturing.

Analysis:

Refund of Interest:
The appellant filed a refund claim of interest paid for late payment of duty for the period of July to September 2010. The claim was rejected by the revenue on the grounds that the interest was payable for duty late deposited during that period as per the Chewing Tobacco and Unmanufactured Tobacco Packing Machines Rules, 2010. The appellant argued that no show cause notice was issued, no duty demand was confirmed, and therefore, interest payment was not required. The Tribunal found that without the issuance of a show cause notice, the demand of duty cannot be confirmed, and consequently, interest recovery is not sustainable. The case laws cited by the appellant supported the contention that adjustment of interest is not permissible without a confirmed demand. Therefore, the interest recovered from the appellant was ordered to be refunded.

Applicability of Rules:
The revenue contended that the appellant was required to pay duty on the 5th of every month as per Rule 10 of the Chewing Tobacco and Unmanufactured Tobacco Packing Machines Rules, 2010. It was argued that the appellant did not pay full duty for the period in question and should have filed an abatement claim if the machines were not functional for the entire month. The Tribunal noted that the appellant had intimated the Department about the closure of their machines and payment of duty on a pro-rata basis. The absence of a show cause notice before confirming duty demand led to the conclusion that interest payment for delayed duty was not justified.

Show Cause Notice Requirement:
The Tribunal emphasized the importance of issuing a show cause notice before confirming duty demand and recovering interest. It was held that the principles of natural justice require the issuance of a show cause notice to the assessee, affording a reasonable opportunity for adjudication. Since no show cause notice was issued in this case, the demand of interest was deemed unsustainable, and the interest recovery was ordered to be refunded.

Tobacco Manufacturing and Case Laws:
The revenue argued that special rules for tobacco manufacturing applied, and the provisions of section 11 AC of the Act were relevant in this case. It was contended that the case laws cited by the appellant were not applicable as they did not address the specific issue of tobacco manufacturing. However, the Tribunal found that the principles of natural justice and the requirement of a show cause notice applied universally, irrespective of the industry involved. The decision was influenced by previous judgments emphasizing the necessity of a show cause notice before adjusting demands or recovering interest.

In conclusion, the Tribunal set aside the impugned order denying the refund claim of interest and allowed the appeal in favor of the appellant, ordering the refund of the interest recovered by the revenue.

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