Interest on excise duty adjustment held unsustainable where abatement was intimated in time and department had prior knowledge.

Adjustment of an abated amount against duty liability was recognised where the assessee had intimated the department in time and entitlement to abatement was undisputed. The statutory scheme under Section 3A(3) of the Central Excise Act, 1944 read with the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 did not support levy of interest in these circumstances, especially when the department already knew of the adjustment and no show-cause notice for duty demand was issued for the alleged short payment. Interest could not be sustained by invoking the extended period when the limitation applicable to the principal claim also governed the interest claim.

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Issues: Whether the assessee could adjust the abated amount against its duty liability for February 2011 and whether interest could be demanded for the intervening period.

Analysis: The adjustment of the abated amount was intimated to the department within time and the entitlement to abatement was not in dispute. The statutory scheme under Section 3A(3) of the Central Excise Act, 1944 read with the Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 did not justify levy of interest in the circumstances, particularly when the department had knowledge of the adjustment and no show-cause notice for duty demand was issued for the alleged short payment. The notice for interest was also issued by invoking the extended period, which was not available in view of the knowledge already with the department and the principle that the limitation applicable to the principal claim applies equally to interest.

Conclusion: The demand of interest was not sustainable and the assessee was entitled to the adjustment of the abated amount against the February 2011 duty liability.

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