Penal provision cannot apply retrospectively, while mandatory interest for delayed duty payment remains enforceable under excise rules.

A penal provision cannot be applied to a default period before its commencement, so penalty under the later inserted proviso to Rule 96ZO(3) was unsustainable and was set aside. Interest under Rule 96ZO(3), however, remained mandatory once the assessee failed to discharge duty on time; a bona fide belief and challenge to the duty liability did not displace the statutory obligation. The assessee therefore obtained only partial relief, with the interest demand upheld and the penalty deleted.

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Issues: (i) Whether penalty could be imposed under Proviso III to Rule 96ZO(3) of the Central Excise Rules, 1944 for a period prior to its coming into force. (ii) Whether interest under Rule 96ZO(3) was mandatory despite the assessee's bona fide belief and challenge to the duty liability.

Issue (i): Whether penalty could be imposed under Proviso III to Rule 96ZO(3) of the Central Excise Rules, 1944 for a period prior to its coming into force.

Analysis: Proviso III to Rule 96ZO(3) came into force only from 1-4-1998. The default period was 1-9-1997 to 31-3-1998. Since the proviso was not in existence during the relevant period, it could not be invoked to impose penalty for that default period.

Conclusion: Penalty under Proviso III to Rule 96ZO(3) was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether interest under Rule 96ZO(3) was mandatory despite the assessee's bona fide belief and challenge to the duty liability.

Analysis: The assessee admittedly failed to discharge duty in terms of Rule 96ZO(3). The interest liability under that rule was treated as mandatory. The plea of bona fide belief and the challenge to duty liability did not displace the statutory obligation to pay interest, and withholding the duty amount in time attracted interest at the prescribed rate.

Conclusion: Interest under Rule 96ZO(3) was rightly upheld against the assessee.

Final Conclusion: The demand of interest survived, but the penalty did not, resulting in only partial relief to the assessee.

Ratio Decidendi: A penal provision cannot be applied to a period before its commencement, while interest prescribed by a taxing statute for delayed payment remains obligatory once the underlying default is established.

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