Modvat credit interest demand fails where the show cause notice never proposed interest recovery.

Interest on reversed Modvat credit could not be recovered where the show cause notice sought only reversal of credit under Rule 57-I and contained no proposal for interest. The demand had to be confined to the grounds actually stated in the notice, and the later insertion of an interest provision did not cure the absence of notice. On that basis, the direction to recover interest was unsustainable and the assessee succeeded on the interest issue.

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Issues: Whether interest could be demanded on the reversed Modvat credit when the show cause notice did not propose such interest.

Analysis: The show cause notice was issued only for recovery of Modvat credit under Rule 57-I and contained no proposal for levy of interest. Although the interest provision was inserted later in Rule 57-I, the demand in the present case had to rest on the notice actually issued. In the absence of a notice proposing interest, the direction to recover interest was held unsustainable.

Conclusion: The demand of interest was not legally enforceable, and the assessee succeeded on this issue.

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