Pre-notice duty payment does not automatically bar interest and penalty under Central Excise law, the court clarified.

Payment of differential duty before issuance of a show cause notice does not, by itself, extinguish liability to interest and penalty under the Central Excise Act. Interest under Section 11AB follows delayed payment of duty, while penalty under Section 11AC may apply where short-levy or short-payment is linked to fraud, suppression, wilful misstatement, or intent to evade duty. The Tribunal's view that pre-notice payment automatically ended penalty proceedings was inconsistent with the settled principle. The Revenue's challenge succeeded on this point, though the matter was remitted for consideration of the separate plea regarding reversal of credit before utilisation.

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Issues: Whether payment of differential duty before issuance of show cause notice absolves the assessee from liability to pay interest and penalty under the Central Excise Act.

Analysis: The liability under Section 11AB of the Central Excise Act, 1944 is attracted on delayed payment of duty, and Section 11AC applies where short-levy or short-payment is attributable to fraud, suppression of facts, wilful misstatement, or contravention with intent to evade duty. Mere payment of the differential duty before issuance of the show cause notice does not, by itself, erase the statutory consequences once the conditions for levy of interest and penalty are otherwise satisfied. The Tribunal's view that such pre-notice payment automatically ended the penalty proceedings was inconsistent with the principle settled by the Supreme Court.

Conclusion: Payment of differential duty before issuance of the show cause notice does not by itself absolve the assessee from liability to interest and penalty; the Revenue's challenge succeeds on this issue. The matter was, however, remitted for consideration of the separate plea relating to reversal of credit before utilization.

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