Interest recovery on unconfirmed duty demand is unsustainable without a show-cause notice and due adjudication.

Interest recovered for an alleged delayed duty payment was held unsustainable because the Department had not issued a show-cause notice or validly confirmed any underlying duty demand. The Tribunal held that where short payment is alleged, adjudication must first follow due process and natural justice before demand can be enforced. Recovery or adjustment against an unconfirmed demand was therefore impermissible, and the amount recovered as interest was refundable. The appeal succeeded and the refund claim was allowed.

---

---

Issues: Whether interest recovered from the assessee for alleged delayed payment of duty was sustainable in the absence of a show-cause notice and, if not, whether the recovered amount was refundable.

Analysis: The assessee had intimated the Department regarding closure of machines and payment of duty on a pro rata basis for the relevant period. The Tribunal held that if there was any short payment, the Department was required to issue a show-cause notice before confirming any demand. In the absence of such notice, no demand of duty could be lawfully confirmed and, consequently, no interest could be recovered on the basis of an unsustained demand. The Tribunal also applied the principle that recovery or adjustment against an unconfirmed demand is impermissible and relied on the requirement of observance of natural justice before adjudication.

Conclusion: The demand of interest was held unsustainable and the interest recovered from the assessee was directed to be refunded.

Final Conclusion: The appeal succeeded and the refund claim was allowed because recovery of interest could not be sustained without prior adjudication in accordance with law.

Ratio Decidendi: Interest cannot be recovered on an alleged duty shortfall unless the underlying demand is first validly confirmed after issuing a show-cause notice and following the principles of natural justice.

---