Central Excise notice not barred by voluntary payment, but penalty fails where statutory ingredients are not proved.

Section 11A(2B) of the Central Excise Act did not bar the show-cause notice because Section 11A(2C) made that benefit inapplicable where duty had become payable before the Finance Bill, 2001 received Presidential assent. Voluntary payment of the differential duty therefore did not prevent proposal of interest and penalty, and the interest demand was sustained. Penalty under Section 11AC was nevertheless not justified on the facts, as the assessee had followed board instructions, made duty declarations, and paid the shortfall when pointed out; the revenue-neutral character of the dispute also supported deletion of penalty. Duty and interest remained payable, but the penal consequence was set aside.

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Issues: (i) Whether Section 11A(2B) of the Central Excise Act, 1944 barred the show-cause notice in the facts of the case, and whether interest under Section 11AB and penalty under Section 11AC could still be proposed. (ii) Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable on the facts.

Issue (i): Whether Section 11A(2B) of the Central Excise Act, 1944 barred the show-cause notice in the facts of the case, and whether interest under Section 11AB and penalty under Section 11AC could still be proposed.

Analysis: Section 11A(2B) was held inapplicable by reason of Section 11A(2C), because the duty had become payable before the Finance Bill, 2001 received Presidential assent. The assessee's voluntary payment of differential duty did not attract the benefit of the inapplicable sub-section. On that basis, issuance of the show-cause notice proposing interest and penalty was not barred, and the demand of interest was not shown to be unsustainable.

Conclusion: The bar under Section 11A(2B) did not apply, and the demand of duty with interest was sustained.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable on the facts.

Analysis: The assessee had followed board instructions, assessed duty on the cost-construction basis, filed declarations under Rule 173C of the Central Excise Rules, 1944, and paid the shortfall when pointed out. On these facts, the element necessary for penalty under Section 11AC was not made out. The plea of revenue neutrality also supported the conclusion that penalty was not justified.

Conclusion: Penalty under Section 11AC was not sustainable and was set aside.

Final Conclusion: The demand of duty and interest remained in force, but the penal consequence was removed, leaving the assessee with partial relief only.

Ratio Decidendi: Where the statutory exclusion in Section 11A(2C) applies, voluntary payment of duty does not bar a notice for interest and penalty; however, penalty under Section 11AC requires the statutory ingredients for penal liability to be established on the facts.

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