Penal interest on excise dues arises only after a valid fresh demand, not from a quashed demand later revived

Penal interest on excise dues was treated as payable only when the liability became legally recoverable under a valid demand. A demand earlier quashed by the High Court was regarded as having no legal existence and could not support interest for that period, even though the liability was later restored by the Supreme Court. The Supreme Court's reversal revived the State's right to raise a fresh demand, but it did not automatically revive the quashed demand for interest purposes. Because the amount was paid within the stipulated time after the fresh demand, no penal interest was leviable and the interest demand was set aside.

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Issues: Whether penal interest was payable on the excise demand after the earlier demand notice had been quashed and the liability was later revived by the Supreme Court, and whether interest could run from the original demand period or only from a fresh valid demand after the Supreme Court decision.

Analysis: Section 38A of the U.P. Excise Act, 1910 was held to operate prospectively and to apply when excise revenue becomes payable, meaning when it is legally recoverable. A demand that had been quashed by the High Court was treated as wiped out and incapable of supporting a claim for interest during the period when it had no legal existence. The reversal by the Supreme Court restored the State's right to raise a fresh demand, but it did not automatically revive the earlier quashed demand for the purpose of charging interest. The distinction between quashing and stay was material, and the principle of merger did not alter the need for a fresh valid demand. Any concession contrary to the statute could not override the statutory mandate.

Conclusion: Penal interest was not payable from the original demand period; it could arise only after a fresh valid demand following the Supreme Court decision, and since the amount was paid within the stipulated period, no penal interest was leviable.

Final Conclusion: The challenge to the interest demand succeeded, and the impugned penal interest order was set aside.

Ratio Decidendi: Interest on excise revenue becomes chargeable only when the liability is legally recoverable under a valid demand, and a demand that has been quashed cannot support interest until it is revived by a fresh lawful demand.

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