Pre-notice duty payment bars excise penalty and interest unless fraud or suppression with intent to evade is proved.

Penalty under Section 11AC of the Central Excise Act is sustainable only where fraud, collusion, suppression of facts or misstatement with intent to evade duty is established. Mere payment of duty before issuance of the show-cause notice, even after departmental detection, does not by itself prove those statutory ingredients. On the stated facts, interest under Section 11AB was also not justified, and the setting aside of both penalty and interest was upheld.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 and interest under Section 11AB of the Central Excise Act, 1944 could be sustained when the assessee had paid the duty before issuance of the show-cause notice.

Analysis: The liability to penalty under Section 11AC depends on the statutory ingredients of fraud, collusion, suppression of facts or misstatement with intent to evade duty. The payment of duty before the show-cause notice, even if made after departmental detection, does not by itself establish those ingredients. On the authorities considered, prior payment of duty before notice was treated as sufficient to exclude penalty under Section 11AC and interest under Section 11AB on the facts of the case.

Conclusion: The invocation of Section 11AC and Section 11AB was not justified, and the order setting aside the penalty and interest was upheld.

Ratio Decidendi: Where duty is paid before issuance of the show-cause notice, penalty under Section 11AC and interest under Section 11AB cannot be imposed unless the statutory conditions of fraud, collusion, suppression of facts or misstatement with intent to evade duty are established.

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