Show cause notice requirement defeats interest recovery on reversed CENVAT credit where no separate notice was issued.

Interest on reversed CENVAT credit could not be recovered without issuing a show cause notice, because the demand was raised only by letter and no separate notice was served within a reasonable period. The Tribunal applied the majority view in Paper Products and treated the absence of notice as fatal to recovery of interest under Rule 14 of the CENVAT Credit Rules, 2004. On that basis, the interest demand was held unsustainable and the assessee succeeded.

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Issues: Whether interest could be demanded on reversed CENVAT credit in the absence of a show cause notice for recovery of interest.

Analysis: The appeal turned on whether separate notice was required before initiating recovery of interest. The Tribunal noted that there was no dispute that no show cause notice had been issued and that the demand was made by letter referring to Rule 14 of the CENVAT Credit Rules, 2004. Relying on the majority view in Paper Products, it held that where only interest is sought to be recovered and no notice has been issued within a reasonable period, the demand cannot be sustained.

Conclusion: The demand of interest was held unsustainable for want of a show cause notice, and the assessee succeeded.

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