Penalty requires fraud or suppression, while interest follows delayed duty payment and remains payable on the differential duty.

Penalty under Section 11AC of the Central Excise Act was not leviable because the record did not establish fraud, collusion, wilful misstatement or suppression of facts with intent to evade duty; the assessee had disclosed the relevant working and had already debited a substantial amount before the officers' visit. Interest under Section 11AB was nevertheless payable on the differential duty, as liability to interest followed the statutory consequence of delayed payment and was not displaced by payment made before issuance of notice. The order deleting penalty was sustained, but the liability to interest on the duty differential was upheld.

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Issues: (i) Whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable on the facts found; (ii) Whether interest under Section 11AB of the Central Excise Act, 1944 was payable on the differential duty for the relevant period.

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

Analysis: Penalty under Section 11AC can be attracted only when the ingredients of fraud, collusion, wilful misstatement or suppression of facts with intent to evade duty are established. The record showed that a substantial amount had been debited before the visit of the officers and the assessee had disclosed the working and related facts regarding amortisation cost. In these circumstances, the required ingredients for invoking the penal provision were not made out.

Conclusion: Penalty was not leviable and the assessee succeeded on this issue.

Issue (ii): Whether interest under Section 11AB of the Central Excise Act, 1944 was payable on the differential duty for the relevant period.

Analysis: Liability to interest follows the statutory consequence of delayed payment of duty. The differential duty for the period in question remained payable, and payment before issuance of notice did not take away the statutory liability to interest for the period of default.

Conclusion: Interest was payable and this issue was decided in favour of Revenue.

Final Conclusion: The order was sustained as to deletion of penalties, but modified to uphold liability to interest on the duty differential, leaving the appeal partly successful for Revenue.

Ratio Decidendi: Penalty under Section 11AC of the Central Excise Act, 1944 requires proof of fraud or suppression with intent to evade duty, whereas interest on delayed duty payment is a statutory consequence once the duty remains unpaid for the relevant period.

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