Interest on delayed excise duty follows reasonable-time recovery and revenue neutrality does not defeat statutory liability.

Where the Central Excise Act does not prescribe a specific limitation period for recovery of interest on delayed duty, the demand must be raised within a reasonable period. The commentary notes that interest on suo motu payment of differential duty was treated as recoverable when the show cause notice followed within a reasonable time, and a separate notice for interest was not treated as necessary where duty proceedings were already initiated. It also explains that revenue neutrality does not extinguish the statutory liability to pay interest. Penalty under Rule 27 of the Central Excise Rules, 2002 was sustained on the footing that non-payment of interest constituted a breach attracting general penalty.

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Issues: (i) whether interest on suo motu payment of differential excise duty was recoverable within time and in the absence of a separate notice alleging suppression or wilful misstatement; (ii) whether penalty under Rule 27 was sustainable and whether revenue neutrality or absence of a separate notice defeated the demand.

Issue (i): whether interest on suo motu payment of differential excise duty was recoverable within time and in the absence of a separate notice alleging suppression or wilful misstatement.

Analysis: Section 11AB of the Central Excise Act, 1944 does not prescribe a specific limitation period for recovery of interest. The governing principle applied was that, in the absence of an express period of limitation, recovery must be initiated within a reasonable period. On the facts, the differential duty paid in December 2002 was reflected only in the return filed thereafter, and the show cause notice issued in October 2003 was treated as being within a reasonable period for that payment. The majority also held that, where duty recovery proceedings had already been initiated, no separate notice was necessary for interest, and that the department was entitled to recover interest on delayed payment of duty.

Conclusion: The demand of interest was held sustainable in respect of the payment made in December 2002 and was not treated as time-barred.

Issue (ii): whether penalty under Rule 27 was sustainable and whether revenue neutrality or absence of a separate notice defeated the demand.

Analysis: The majority held that delayed payment of duty attracted interest as a statutory consequence, and that the concept of revenue neutrality had no bearing on the obligation to pay such interest. Since the assessee had not discharged the interest liability, breach of the rules was established. Rule 27 of the Central Excise Rules, 2002 provided for general penalty where no other penalty was specifically prescribed, and the facts were held sufficient to sustain the imposed penalty. The absence of a separate, standalone notice for interest did not invalidate the demand where duty proceedings had already been initiated.

Conclusion: The penalty under Rule 27 was upheld and the revenue neutrality objection failed.

Final Conclusion: The appeal succeeded only to a limited extent, with the interest demand maintained for the later payment and the penalty upheld, while the balance of the interest demand was set aside.

Ratio Decidendi: Where the statute does not prescribe a specific limitation for recovery of interest on delayed duty, the demand must be made within a reasonable period, and delayed payment of duty carries an automatic interest liability; revenue neutrality does not extinguish that liability.

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