Penalty for disputed duty liability set aside, but interest sustained on delayed payment after crystallisation of duty.

Penalty under Rule 96ZP(3) was unsustainable because the assessee had disputed the annual capacity determination from the outset and the duty position crystallised only after the Supreme Court finally settled the issue in favour of the Revenue; absent wilful default, the penalty was set aside. Interest on the differential duty was still payable because the liability arose once the duty became crystallised and payment was delayed, with computation to run from the prescribed period after service of the order-in-original. The appeal therefore succeeded only on deletion of penalty, while interest liability was sustained.

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Issues: (i) whether penalty under Rule 96ZP(3) was sustainable in the facts of the case; (ii) whether interest on the differential duty was payable and from what point of time.

Issue (i): whether penalty under Rule 96ZP(3) was sustainable in the facts of the case

Analysis: The assessee had disputed the annual capacity determination from the inception and had succeeded before the Tribunal and the High Court until the Supreme Court ultimately settled the capacity issue in favour of the Revenue. On those facts, the default was not deliberate and the liability arose only after the Supreme Court's decision clarified the duty position.

Conclusion: Penalty was not sustainable and was set aside, in favour of the assessee.

Issue (ii): whether interest on the differential duty was payable and from what point of time

Analysis: The differential duty became payable only after the Supreme Court pronounced on the capacity issue. As the duty was paid belatedly, interest followed for the delayed period. The interest was directed to be computed by the adjudicating authority, with reference to the period after the prescribed time from service of the order-in-original.

Conclusion: Interest was payable on the belatedly paid differential duty, in favour of the Revenue.

Final Conclusion: The appeal succeeded only to the extent of deletion of penalty, while the duty-related interest liability was sustained for delayed payment.

Ratio Decidendi: Where duty liability becomes crystallised only upon final determination of the dispute, penalty for deliberate default is unsustainable absent wilful evasion, but interest remains payable on delayed discharge of the crystallised duty liability.

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