Provisional assessment demands must await finalisation; premature recovery, interest, and penalty cannot stand without a valid final assessment.

Where duty arose from provisional assessment, the differential duty had to be worked out on finalisation of that assessment, and a demand under the general recovery provision was premature. The Tribunal treated the amount deposited under protest as recoverable only through the final assessment process, and held that interest and penalty could not survive once the underlying demand failed. It also noted that the statutory provision for interest on finalisation of provisional assessment was introduced later and could not apply retrospectively to the disputed period. The impugned order was set aside and the matter was directed to proceed in accordance with finalisation of provisional assessment.

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Issues: (i) Whether the show cause notice and demand under Section 11A were maintainable when the clearances were under provisional assessment and the assessment had not been finalised; (ii) Whether interest and penalty could be sustained when the demand itself arose from a provisional assessment and the relevant interest provision was introduced later.

Issue (i): Whether the show cause notice and demand under Section 11A were maintainable when the clearances were under provisional assessment and the assessment had not been finalised.

Analysis: The assessments during the relevant period were provisional and the record showed that the department had directed provisional assessment under Rule 9B. In such a situation, the recoverable differential duty had to be worked out on finalisation of the provisional assessment, and not by issuing a premature demand under Section 11A. The Tribunal held that the amount deposited under protest could be appropriated only after completing the final assessment procedure. Reliance on the earlier High Court order was not accepted because that order had been set aside by the Supreme Court.

Conclusion: The demand under Section 11A was not maintainable and the finding goes in favour of the assessee.

Issue (ii): Whether interest and penalty could be sustained when the demand itself arose from a provisional assessment and the relevant interest provision was introduced later.

Analysis: Once the demand itself was held to be premature, the consequential levy of interest and penalty could not survive. The Tribunal also held that the statutory provision for charging interest on finalisation of provisional assessment was introduced later and could not be applied retrospectively to the period in dispute. As the show cause notice did not validly sustain a demand under Section 11A, the penalty under Rule 173Q(1)(a) also failed.

Conclusion: The interest and penalty were unsustainable and the finding goes in favour of the assessee.

Final Conclusion: The impugned order was set aside, the appeal was allowed, and the authorities were directed to proceed in accordance with finalisation of the provisional assessment rather than by sustaining the disputed demand.

Ratio Decidendi: Where duty liability arises from a provisional assessment, the differential duty must be determined through finalisation of that assessment and a demand under the general recovery provision is premature; consequential interest and penalty cannot survive without a valid demand and a retrospective interest levy is impermissible.

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