Mandatory interest on short-paid excise duty upheld, but penalty under Section 11AC was set aside for mere ignorance.

Short-paid excise duty attracted statutory interest under Section 11AB because the duty short payment was undisputed and interest followed mandatorily from the demand sustained in law. Penalty under Section 11AC was not sustainable because the factual finding showed that the short payment arose from the assessee's ignorance and not from the conditions required for penal liability. The duty and interest demands were therefore upheld, while the penalty was deleted, granting partial relief to the assessee.

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Issues: (i) Whether the penalty imposed under Section 11AC of the Central Excise Act, 1944 was sustainable; (ii) Whether interest was leviable on the short-paid duty under Section 11AB of the Central Excise Act, 1944.

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

Analysis: The short payment was found to have occurred owing to ignorance of the assessee. Penalty under Section 11AC is attracted only when the statutory requirements for penal liability are met, and the finding recorded by the appellate authority negated such basis for penalty in the present case.

Conclusion: The penalty was not sustainable and was set aside.

Issue (ii): Whether interest was leviable on the short-paid duty under Section 11AB of the Central Excise Act, 1944.

Analysis: Section 11AB mandates payment of interest on duty short-paid or not paid upon demand. The existence of short payment was not in dispute, and the statutory consequence of interest followed from the demand sustained in law.

Conclusion: Interest was leviable and the demand of interest was sustained.

Final Conclusion: The duty and interest demands were upheld, while the penalty was deleted, resulting in partial relief to the assessee.

Ratio Decidendi: Where short-paid duty is liable to interest under the statute, interest follows mandatorily, but penalty under Section 11AC is not sustainable when the finding on facts shows only ignorance and not the conditions necessary for penal levy.

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