Revenue-neutral duty demand cannot support an independent interest liability where credit and set-off fully neutralise the tax chain.

Interest under Section 11AA of the Central Excise Act was held not sustainable where the underlying duty demand was revenue neutral. The Tribunal found that excise duty paid on the intermediate product was available as Cenvat credit and that any duty on the captively consumed product would have been set off against credit arising at the final stage. The exemption notification did not change that revenue-neutral character, and the interest claim could not be separated from the neutralised duty demand to create an independent liability. The Revenue's challenge failed, and the Tribunal's finding of revenue neutrality was upheld.

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Issues: Whether interest demand under Section 11AA of the Central Excise Act, 1944 could survive when the underlying duty was revenue neutral and the duty paid at an intermediate stage was available as credit.

Analysis: The Tribunal's finding was that the additional excise duty paid on the intermediate product was available as Cenvat credit under the relevant rules, and that the duty confirmed on the captively consumed product would have been available for set-off against the credit arising at the final stage. On the facts, the demand was neutralised because the amount payable at one stage could be adjusted against credit available at another stage. The exemption notification did not alter the revenue-neutral character of the transaction, and the interest component could not be segregated from the neutralised duty demand so as to create an independent liability.

Conclusion: The interest demand was not sustainable, and the Tribunal's conclusion that the case involved revenue neutrality was upheld.

Final Conclusion: The challenge raised by the Revenue failed, as the Court held that no substantial question of law arose from the Tribunal's revenue-neutrality finding.

Ratio Decidendi: Where the duty liability is fully neutralised by credit or set-off available in the same manufacturing chain, an interest claim parasitic on that neutralised demand cannot be independently enforced.

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