Central excise duty demand and mandatory penalty fail where short payment was already made good and wilful suppression was not alleged.

Short-paid central excise duty arising on final determination of annual capacity of production, having been paid before issuance of the show cause notice, left no surviving duty demand, and invocation of Section 11A of the Central Excise Act and Rule 9 of the Central Excise Rules was unwarranted. Penalty under Section 11AC and interest under Section 11AB were also not sustainable because the notice did not allege wilful misstatement or wilful suppression of facts, and mandatory liability under those provisions requires the requisite culpable conduct. The discussion distinguished provisional assessment under Rule 9B from final determination under the compounded levy scheme.

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Issues: (i) Whether any duty demand could survive when the short-paid duty, arising on final determination of annual capacity of production, had already been made good before the show cause notice; (ii) Whether penalty under Section 11AC of the Central Excise Act and interest under Section 11AB of the Central Excise Act were sustainable in the absence of an allegation of wilful misstatement or wilful suppression of facts.

Issue (i): Whether any duty demand could survive when the short-paid duty, arising on final determination of annual capacity of production, had already been made good before the show cause notice.

Analysis: The short payment consequent upon final determination of annual capacity of production had already been paid before issuance of the show cause notice. In that situation, there remained no cause for a demand of duty. The attempt to invoke Section 11A of the Central Excise Act and Rule 9 of the Central Excise Rules was therefore unwarranted on the facts found.

Conclusion: No duty demand survived and invocation of Section 11A of the Central Excise Act and Rule 9 of the Central Excise Rules was not justified.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act and interest under Section 11AB of the Central Excise Act were sustainable in the absence of an allegation of wilful misstatement or wilful suppression of facts.

Analysis: The show cause notice alleged misdeclaration of the relevant factor and suppression of the correct value, but it did not allege that such misdeclaration or suppression was wilful. The statutory conditions for mandatory penalty and interest require fraud, collusion, wilful misstatement, suppression of facts, or comparable culpable conduct. The case law relied upon concerning provisional assessment under Rule 9B of the Central Excise Rules was held inapplicable because the present matter concerned provisional determination of annual capacity under the compounded levy scheme followed by final determination.

Conclusion: Penalty under Section 11AC of the Central Excise Act and interest under Section 11AB of the Central Excise Act were not sustainable.

Final Conclusion: The Revenue's challenge failed, and the appellate order setting aside the penalty and interest was maintained.

Ratio Decidendi: Mandatory penalty and interest under the Central Excise Act cannot be sustained unless the show cause notice and findings establish the requisite wilful culpability, and where the duty differential has already been paid before notice, no duty demand survives.

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