Central excise penalty needs proof of fraud or suppression; interest on delayed duty remains payable under the statutory scheme.

Penalty under Section 11AC of the Central Excise Act and Rule 173Q was held unsustainable because the record did not establish fraud, collusion, wilful misstatement, suppression of facts, or an intention to evade duty; mere omission to disclose price-revision efforts and failure to follow provisional assessment procedure was insufficient. The penalties were set aside. Interest under Section 11AB was treated as statutorily payable on delayed duty payment in accordance with the prescribed scheme, so the interest liability was upheld.

---

---

Issues: (i) Whether penalty under Section 11AC of the Central Excise Act, 1944 and Rule 173Q of the Central Excise Rules, 1944 was sustainable on the facts; (ii) Whether interest under Section 11AB of the Central Excise Act, 1944 was payable.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act, 1944 and Rule 173Q of the Central Excise Rules, 1944 was sustainable on the facts.

Analysis: Penalty under Section 11AC requires the existence of fraud, collusion, wilful misstatement, suppression of facts, or intention to evade duty. The record showed that the assessee had cleared goods on the prices fixed by the Ministry of Petroleum, had sought revision of prices through the controlling Ministry, and had paid differential duty upon higher price fixation. On those facts, the non-disclosure of the attempt to secure price revision and the omission to follow provisional assessment procedure did not establish deliberate evasion or the statutory ingredients for the penal provision. For the same reason, the conduct did not amount to a rule breach warranting penalty under Rule 173Q.

Conclusion: Penalty under Section 11AC and Rule 173Q was not leviable and was set aside, in favour of the assessee.

Issue (ii): Whether interest under Section 11AB of the Central Excise Act, 1944 was payable.

Analysis: Interest liability under Section 11AB arises from the date prescribed by the provision for delayed payment of duty. The provision was treated as applicable according to law, and the computation of interest was held to follow the statutory scheme.

Conclusion: Interest under Section 11AB was payable, against the assessee.

Final Conclusion: The appeal succeeded only to the extent of setting aside the penalties, while the statutory interest liability remained undisturbed.

Ratio Decidendi: Penalty under Section 11AC is not sustainable unless the statutory elements of fraud, collusion, wilful misstatement, suppression of facts, or intention to evade duty are established; mere failure to follow provisional assessment or disclose attempts at price revision does not by itself attract the penalty where duty is paid on the approved price basis.

---