Central excise interest and penalty were deleted for a pre-September 1996 period and classification-based penalty was found inapplicable.

Interest on central excise duty for clearances prior to September 1996 was held unsustainable, following the cited circular and the view that section 11AB did not apply to that covered period. Penalty under section 11AC was also held unsustainable because the final classification adopted in the matter differed from the classification proposed in the show cause notice, making invocation of the penalty provision improper. The appeal therefore succeeded only to the extent of deletion of interest and penalty, while the underlying duty determination was left undisturbed.

---

---

Issues: (i) whether interest was payable on the duty liability for the period prior to September 1996; (ii) whether penalty under section 11AC of the Central Excise Act, 1944 was sustainable.

Issue (i): whether interest was payable on the duty liability for the period prior to September 1996.

Analysis: The demand related to a period prior to September 1996. Reliance was placed on Circular No. 655/46/2002-CX dated 26 June 2002, indicating that interest under section 11AB of the Central Excise Act, 1944 was not payable on such clearances. In the facts of the case, the interest component was therefore unsustainable.

Conclusion: Interest was not payable and the interest liability was set aside.

Issue (ii): whether penalty under section 11AC of the Central Excise Act, 1944 was sustainable.

Analysis: The final classification adopted in the matter was not the classification proposed in the show cause notice, but one arrived at in other proceedings. In those circumstances, invocation of section 11AC of the Central Excise Act, 1944 was held to be improper and the confirmed penalty could not survive.

Conclusion: The penalty was not sustainable and was set aside.

Final Conclusion: The appeal succeeded only to the extent of deletion of interest and penalty, while the underlying duty determination was left undisturbed.

Ratio Decidendi: Interest under section 11AB cannot be sustained for the covered pre-September 1996 period on the basis applied here, and penalty under section 11AC is not attracted where the final classification did not follow the show cause notice proposal.

---