Penalty for excise rule contravention upheld without mens rea, while interest under Section 11AB was denied for lack of culpable conduct.

Penalty under Rule 173Q(1)(a) was held leviable where clearances to a sister concern were valued on the required cost-based basis but duty was short-paid, since the contravention of the Central Excise Rules, 1944 itself was sufficient and proof of mens rea was not required. Interest under Section 11AB was not chargeable for the relevant period because no material showed wilful misstatement, suppression of facts, fraud, or wilful contravention. The penalty was restored and the interest demand remained set aside.

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Issues: (i) whether penalty under Rule 173Q(1)(a) of the Central Excise Rules, 1944 was leviable for short payment of duty on clearances to a sister concern; (ii) whether interest under Section 11AB was chargeable for the period in dispute.

Issue (i): whether penalty under Rule 173Q(1)(a) of the Central Excise Rules, 1944 was leviable for short payment of duty on clearances to a sister concern.

Analysis: The goods were cleared to a sister concern on valuation required to be based on 115% of the cost of production, but duty was not paid on that basis, resulting in short payment and contravention of Rule 9 of the Central Excise Rules, 1944. Penalty under Rule 173Q(1)(a) was held to be attracted for contravention of the rules and not dependent upon mens rea. The view taken by the Larger Bench was followed.

Conclusion: Penalty under Rule 173Q(1)(a) was rightly imposed and was restored in favour of Revenue.

Issue (ii): whether interest under Section 11AB was chargeable for the period in dispute.

Analysis: For the relevant period, charging of interest under Section 11AB was linked with wilful misstatement, suppression of facts, fraud or wilful contravention of the rules. No evidence establishing any such ingredient was found on record.

Conclusion: Interest under Section 11AB was not chargeable and the relief on this issue remained in favour of the assessee.

Final Conclusion: The order was modified by restoring the penalty while sustaining the setting aside of interest, resulting in a partial success for both sides on their respective issues.

Ratio Decidendi: Penalty under Rule 173Q(1)(a) is imposable for contravention of the excise rules without proof of mens rea, whereas interest under Section 11AB for the relevant period requires proof of the specified culpable ingredients.

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