Show cause notice required before appropriation of duty paid under protest or related interest under excise law.

Excise duty deposited under protest could not be rejected as a refund or appropriated towards alleged short payment without a show cause notice under section 11A of the Central Excise Act, because the statutory recovery mechanism requires notice unless the amount is voluntarily paid under the prescribed process. The absence of notice vitiated the proposed recovery and refund rejection. Interest on the same amount also could not be appropriated, as the underlying refund rejection was unsustainable and no separate demand notice for interest had been served. The assessee was therefore entitled to refund of the amount paid under protest, and the consequential interest appropriation also failed.

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Issues: (i) Whether the refund claim of excise duty paid under protest could be rejected and the amount appropriated without issuance of a show cause notice under section 11A of the Central Excise Act, 1944; (ii) Whether interest on the alleged delayed payment of the same amount could be appropriated without a notice and after rejection of the refund claim.

Issue (i): Whether the refund claim of excise duty paid under protest could be rejected and the amount appropriated without issuance of a show cause notice under section 11A of the Central Excise Act, 1944

Analysis: Section 11A governs recovery of duties not levied, not paid, short levied, or short paid, and requires service of notice on the person chargeable to duty unless the amount is voluntarily paid on ascertainment under the statutory mechanism. The payment in question was made under protest and not as an ance of liability under the notice-avoidance mechanism in section 11A(1)(b). In such a situation, a notice was obligatory before the department could appropriate the amount towards differential duty. The absence of such notice vitiated the rejection of the refund claim.

Conclusion: The issue is decided in favour of the assessee. The refund could not be rejected and the amount could not be appropriated without a show cause notice.

Issue (ii): Whether interest on the alleged delayed payment of the same amount could be appropriated without a notice and after rejection of the refund claim

Analysis: Once the refund rejection was unsustainable, there was no basis to fasten interest on the amount as if the underlying duty liability had been conclusively recovered. Independently, no notice demanding the interest amount had been served before appropriation. The appropriation of interest therefore lacked procedural and substantive support.

Conclusion: The issue is decided in favour of the assessee. The appropriation of interest was not sustainable.

Final Conclusion: The assessee was entitled to refund of the amount deposited under protest, and the consequential interest appropriation also failed.

Ratio Decidendi: Where excise duty is deposited under protest and the amount is sought to be recovered or appropriated as short-paid duty, the statutory notice requirement under section 11A must be complied with before any enforceable recovery or appropriation can be made.

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