Penalty for non-payment after export cancellation and interest on differential duty under concessional clearance rules were upheld.

Penalty under Section 11AC of the Central Excise Act was upheld where duty became payable after cancellation of the export order, but the assessee did not pay promptly and the default was detected in audit rather than through voluntary compliance. Payment of duty and part interest before notice did not cure the earlier lapse, and the conduct was treated as supporting penal consequences. Interest was also held recoverable under Rule 7 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules on differential duty for chassis cleared at concessional rate, because the goods were not used for the intended purpose and the rule expressly permits recovery of interest.

---

---

Issues: (i) Whether penalty under Section 11AC of the Central Excise Act was sustainable for non-payment of duty after cancellation of the export order. (ii) Whether interest was recoverable on the differential duty arising on the chassis under Rule 7 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act was sustainable for non-payment of duty after cancellation of the export order.

Analysis: The liability arose when the export order was cancelled and the goods were not exported. The failure to discharge duty promptly was not voluntary, as the discrepancy was detected during audit. Payment of duty and part of interest before notice did not erase the earlier default. The conduct was treated as showing mala fides and justified penal consequences.

Conclusion: Penalty under Section 11AC was upheld.

Issue (ii): Whether interest was recoverable on the differential duty arising on the chassis under Rule 7 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules.

Analysis: Rule 7 specifically provides recovery of the differential duty along with interest when goods cleared at concessional rate are not used for the intended purpose. The argument that no loss was caused because duty on the bus was paid was rejected, since duty on the chassis would have been available to the revenue earlier and the assessee could not have used the corresponding credit until clearance of the buses. The rule therefore supported recovery of interest.

Conclusion: Interest on the delayed recovery was held recoverable.

Final Conclusion: The appeal failed on both the penalty and interest issues, and the impugned demand and penalty were sustained.

Ratio Decidendi: Where duty is not paid after the contingency giving rise to liability is known to the assessee, and the default is detected through audit rather than voluntary compliance, penalty under Section 11AC may be sustained; additionally, Rule 7 authorises recovery of interest on differential duty when concessional goods are not used for the intended purpose.

---