Recovery of excise interest cannot be adjusted from refund without prior notice and adjudication.

Interest under Section 11AA of the Central Excise Act could not be recovered or adjusted against a refund where the show cause notice and adjudication order contained no proposal or determination of such interest. In the absence of prior notice and adjudication, the department lacked authority to treat the interest as an outstanding government dues item and deduct it from the refundable amount. The adjustment was therefore unlawful, and the assessee succeeded on the issue.

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Issues: Whether interest under Section 11AA of the Central Excise Act, 1944 could be recovered and adjusted against refund when neither the show cause notice nor the adjudication order proposed or imposed such interest.

Analysis: The liability to pay interest under Section 11AA arose only after its insertion, and the record showed that the show cause notice and the order-in-original did not contain any proposal or determination of interest. In the absence of a specific proposal in the notice or an adjudicated demand, the department could not later recover or adjust interest as an outstanding dues item from the refundable amount. Recovery of any sum without prior legal authority and without adjudication was held to be impermissible.

Conclusion: The adjustment of interest was held unlawful, and the assessee succeeded on this issue.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief in accordance with law.

Ratio Decidendi: Amounts by way of interest cannot be recovered or adjusted as government dues unless the liability is expressly proposed in the show cause notice and determined in the adjudication order.

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