Show cause notice scope limits excise interest demands, and pre-notice discharge of duty and credit bars further penalty.

Interest under Rule 8(3) of the Central Excise Rules could not be sustained where the show cause notice proposed only penalty under Rule 25 and interest under Section 11AB, because a demand cannot be upheld on a basis not set out in the notice. Where the duty liability and wrongly availed Cenvat credit had already been discharged before issuance of the notice, the foundation for further interest or penalty did not survive. The tribunal therefore set aside the interest demand and held that no further levy of interest or penalty was justified.

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Issues: (i) whether interest could be sustained under Rule 8(3) of the Central Excise Rules when the show cause notice did not propose such levy; and (ii) whether penalty or interest could be levied when the duty and wrongly availed Cenvat credit had already been discharged before issue of the show cause notice.

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

Analysis: The notice proceeded only on the basis of penalty under Rule 25 of the Central Excise Rules and interest under Section 11AB of the Central Excise Act. It contained no proposal to levy interest specifically under Rule 8(3) of the Central Excise Rules. An appellate authority cannot uphold a demand on a basis not set out in the notice, because that would travel beyond the scope of the notice and the proposed case.

Conclusion: The levy of interest under Rule 8(3) was not sustainable and was against the assessee.

Issue (ii): whether penalty or interest could be levied when the duty and wrongly availed Cenvat credit had already been discharged before issue of the show cause notice.

Analysis: The material showed that the duty liability had already been met and the wrongly availed Cenvat credit had been reversed before the notice. In such circumstances, the foundation for further penal or interest action did not survive, and the cited decisions supported the view that pre-notice discharge of the dues negated the proposed levy.

Conclusion: No further levy of interest or penalty was justified, and this issue was also decided in favour of the assessee.

Final Conclusion: The order sustaining interest was set aside and the appeal was allowed in full on the substantive issues raised.

Ratio Decidendi: A demand of interest cannot be sustained on a ground not proposed in the show cause notice, and where duty with wrongly availed credit has been discharged before notice, further levy of interest or penalty is not justified.

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