Service tax interest arrears cannot be adjusted against pre-deposit refund under Central Excise recovery provisions.

Interest arrears arising from service tax liability could not be adjusted against a refundable pre-deposit by invoking Section 11 of the Central Excise Act, 1944, because the dues arose under the Finance Act, 1994 and recovery of such amounts was governed by the specific mechanism in Section 87 of the Finance Act, 2006. Section 11 applies only to dues under the Central Excise Act, so its use for recovering service tax interest was legally unsustainable. The deduction from the refund was therefore set aside in favour of the assessee.

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Issues: Whether the interest arrears arising from service tax liability could be adjusted against the appellant's refund of pre-deposit by invoking Section 11 of the Central Excise Act, 1944, when the recovery of such service tax dues was governed by the Finance Act, 1994.

Analysis: The refund of pre-deposit was admittedly due to the appellant, while the interest sought to be adjusted related to service tax dues under the Finance Act, 1994. By the time of the adjudication order, Section 87 of the Finance Act, 2006 had introduced a specific mechanism for recovery of amounts due under that Chapter. Section 11 of the Central Excise Act, 1944 was therefore not the appropriate provision for recovering service tax interest arrears, as that provision applies only to dues arising under the Central Excise Act, 1944.

Conclusion: The adjustment made under Section 11 of the Central Excise Act, 1944 was unsustainable and the deduction of the interest amount from the refund was set aside in favour of the assessee.

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