Penalty for valuation error requires mala fide intent, but interest still applies on delayed duty payment.

Penalty is not sustainable for short payment of duty caused by an incorrect assessable value calculation where mala fide intention is not established, and the penalty is deleted. Interest remains payable on delayed duty payment as a mandatory consequence of the delay, so the interest demand is upheld. The result is partial relief to the assessee, with penal consequences removed but the time value liability on belated duty payment maintained.

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Issues: (i) Whether penalty was leviable for short payment of duty arising from incorrect calculation of assessable value; (ii) Whether interest on the delayed payment of duty was payable under the applicable provision.

Issue (i): Whether penalty was leviable for short payment of duty arising from incorrect calculation of assessable value.

Analysis: The differential duty arose from a wrong calculation of assessable value and was subsequently paid. The duty paid was taken as cenvat credit by the recipient sister unit. In these circumstances, the requisite malafide intention was not established, and the case did not justify penal action.

Conclusion: Penalty was not leviable and was set aside.

Issue (ii): Whether interest on the delayed payment of duty was payable under the applicable provision.

Analysis: Interest was held to follow whenever there is delay in payment of duty. Since the duty had been paid belatedly, the interest liability remained unaffected.

Conclusion: Interest was payable and the demand was upheld.

Final Conclusion: The order was modified by deleting the penalty while sustaining the interest demand, resulting in partial relief to the assessee.

Ratio Decidendi: Penalty cannot be sustained in the absence of proved malafide intention for a short payment caused by a valuation error, but interest remains payable on delayed duty payment as a mandatory consequence of the delay.

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