Inter-unit transfer valuation: voluntary payment before notice and no mala fide can defeat interest and penalty.

Inter-unit transfers valued under the Central Excise valuation rules may not attract interest or penalty where the differential duty is voluntarily paid before the show cause notice and the recipient sister unit has already taken Cenvat credit. The stated reasoning is that, in the absence of any dispute over credit availment and without proof of mala fide undervaluation, interest liability does not arise and penalty is not sustainable. The operative legal point is that prompt payment of differential duty, coupled with no dishonest intent, removes the basis for consequential interest and penal action in such clearance disputes.

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Issues: Whether interest and penalty were sustainable where the goods were transferred to a sister unit, the assessee paid the differential duty before issuance of the show cause notice, and no mala fide was established.

Analysis: The dispute arose from inter-unit transfers valued under the Central Excise valuation rules. The differential duty was paid voluntarily before the show cause notice. The reasoning accepted earlier decisions holding that, in such circumstances, where the sister unit had taken cenvat credit and there was no dispute as to credit availment, interest liability did not arise. The absence of mala fide in the under-valuation also weighed against imposition of penalty.

Conclusion: Interest was not payable and penalty was unsustainable.

Ratio Decidendi: Where differential duty on inter-unit clearances is paid before issuance of the show cause notice and no mala fide is shown, interest liability and penalty do not survive.

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