Interest demand beyond show cause notice and no further liability after prior reversal of duty and credit

Interest under Rule 8(3) of the Central Excise Rules, 2002 could not be sustained where the show cause notice proposed interest only under Section 11AB and did not allege liability under Rule 8(3); affirming that levy therefore went beyond the notice. Where the duty demand and wrongly availed Cenvat credit had already been reversed and paid before the notice, no further interest survived on the facts, and no additional penalty could be imposed on that basis. The confirmation of interest was accordingly set aside and the assessee succeeded.

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Issues: (i) Whether interest could be sustained under Rule 8(3) of the Central Excise Rules, 2002 when the show cause notice did not propose such levy; (ii) Whether interest was otherwise payable where the duty and wrongly availed Cenvat credit had been discharged before the show cause notice.

Issue (i): Whether interest could be sustained under Rule 8(3) of the Central Excise Rules, 2002 when the show cause notice did not propose such levy.

Analysis: The show cause notice proposed penalty under Rule 25 of the Central Excise Rules, 2002 and interest under Section 11AB of the Central Excise Act, 1944, but it did not contain any proposal to levy interest under Rule 8(3) of the Central Excise Rules, 2002. The appellate authority nevertheless affirmed interest under that rule, which amounted to travelling beyond the notice.

Conclusion: The levy of interest under Rule 8(3) was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether interest was otherwise payable where the duty and wrongly availed Cenvat credit had been discharged before the show cause notice.

Analysis: The duty demand and the wrongly availed Cenvat credit had already been reversed and deposited before issuance of the notice. In such circumstances, the basis for further levy of interest did not survive, and the cited rulings supported the assessee's claim that no interest or penalty could be imposed on the facts found.

Conclusion: No further interest was payable, and this issue was also decided in favour of the assessee.

Final Conclusion: The order confirming interest was set aside and the appeal succeeded.

Ratio Decidendi: A levy of interest cannot be sustained when it is not proposed in the show cause notice, and no further interest survives where the duty and reversed credit have already been discharged before the notice.

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