Deferment of duty and interest under Rule 49A could not apply without permission, while unauthorised yarn removal still attracted penalty.

Rule 49A was an enabling deferment provision for duty on yarn used captively in textile fabrication, so interest could not be levied unless deferment had actually been permitted or sought; the interest demand was therefore set aside. Removal of yarn without discharging duty before use in fabrication, where the deferment facility was not availed, was contrary to the rules and attracted penalty under Rule 173Q(1); the penalty was upheld.

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Issues: (i) whether Rule 49A procedure was mandatory and could sustain levy of interest when no permission for deferment had been granted or sought, and (ii) whether penalty under Rule 173Q(1) was attracted for removal of yarn without discharge of duty before its use in fabrication of textiles.

Issue (i): Whether Rule 49A procedure was mandatory and could sustain levy of interest when no permission for deferment had been granted or sought.

Analysis: Rule 49A was treated as an enabling provision meant to permit deferment of duty on yarn used captively for textile fabrication, not as a compulsory procedure in every case. Interest under that rule could arise only where the assessee had been permitted to defer payment of duty. Since no such permission had been applied for or granted, the provision could not be invoked to levy interest on the facts of the case.

Conclusion: The demand of interest under Rule 49A was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty under Rule 173Q(1) was attracted for removal of yarn without discharge of duty before its use in fabrication of textiles.

Analysis: The duty on yarn ought to have been discharged before removal for textile fabrication when the assessee did not avail the deferment facility. Removal without such discharge was found to be contrary to the rules, thereby attracting penal consequences. The penalty imposed was also viewed as modest and was confirmed.

Conclusion: The penalty under Rule 173Q(1) was upheld against the assessee.

Final Conclusion: The appeal succeeded only to the extent of the interest demand, while the penalty was maintained.

Ratio Decidendi: An enabling deferment provision cannot be used to levy interest unless its benefit was actually granted or availed, but removal of goods without prior duty discharge remains liable to penalty where the governing rules so require.

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