Monthly duty payment mechanism prevents interest from running on removal of inputs or capital goods, with connected penalty failing.

Rule 3(4) of the Cenvat Credit Rules, 2002 required payment equal to the duty on inputs or capital goods removed as such, but it did not fix an immediate payment date on clearance. Rule 8 of the Central Excise Rules, 2002 governed the timing of duty payment and allowed monthly discharge by the 5th of the following month, so the deletion in Notification No. 13/2003-C.E. (N.T.) did not create a separate instant liability. Because interest under Section 11AB of the Central Excise Act, 1944 arises only from the date duty ought to have been paid, interest could not be demanded from the date of removal, and the connected penalty also failed.

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Issues: Whether interest and penalty were payable on removal of inputs or capital goods as such, and whether duty could be treated as payable at the time of clearance or under the monthly payment cycle.

Analysis: Rule 3(4) of the Cenvat Credit Rules, 2002 required payment of an amount equal to the duty leviable on inputs or capital goods removed as such, but did not itself prescribe the time of payment. Rule 8 of the Central Excise Rules, 2002 governed the time and manner of payment of duty for goods removed during a month and permitted payment by the 5th of the following month. The deletion made by Notification No. 13/2003-C.E. (N.T.) did not create a separate immediate payment date on removal. Since interest under Section 11AB of the Central Excise Act, 1944 was demandable only from the date on which duty ought to have been paid, interest could not be charged from the date of clearance when monthly payment was otherwise permissible. In the absence of a sustainable demand for interest, the penalty could not survive.

Conclusion: The demand of interest and the consequential penalty were not sustainable.

Final Conclusion: The Revenue's challenge failed and the assessee's relief was maintained.

Ratio Decidendi: Where the governing rules do not prescribe immediate payment on removal and the assessee is otherwise covered by the monthly duty payment mechanism, interest cannot be levied from the date of clearance, and a penalty dependent on such interest demand also cannot stand.

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