Limitation and pre-paid duty defeated a demand and made a notice for interest and penalty alone unsustainable.

A demand raised after discrepancies were noticed in September 2002 but pursued only through a show cause notice issued in February 2004 was held time-barred on the facts, as the delay rendered the demand unsustainable. Where the duty had already been paid before issuance of the notice, a show cause notice confined only to interest and penalty was also held unsustainable, because recovery proceedings in that form were not required in those circumstances. The impugned order was upheld and the revenue appeal failed in full.

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Issues: (i) Whether the demand was barred by limitation; (ii) Whether a show cause notice could be issued only for interest and penalty when the duty had already been paid before issuance of the notice.

Issue (i): Whether the demand was barred by limitation.

Analysis: The discrepancies were noticed in September 2002, while the show cause notice was issued only in February 2004. The delay supported the finding that the demand was raised beyond a reasonable period and was not sustainable on the facts.

Conclusion: The demand was held to be time-barred.

Issue (ii): Whether a show cause notice could be issued only for interest and penalty when the duty had already been paid before issuance of the notice.

Analysis: The duty had already been paid prior to the issue of the notice. The settled position applied was that a show cause notice need not be issued merely for recovery of interest and penalty in such circumstances.

Conclusion: The show cause notice for interest and penalty alone was held to be unsustainable.

Final Conclusion: The impugned order was upheld and the revenue appeal failed in full.

Ratio Decidendi: Where duty has already been paid before the notice is issued, a show cause notice confined to interest and penalty is not sustainable, and a demand raised belatedly on such basis is liable to be rejected.

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