Pre-notice payment of short-paid excise duty bars Section 11AC penalty and Section 11AB interest

Where duty short-paid was debited before issuance of the show cause notice, penalty under Section 11AC and interest under Section 11AB of the Central Excise Act were held not to be attracted. The liability provisions were treated as operating in the context of confirmed duty evasion under Section 11A(2), and pre-notice payment meant the statutory conditions for invoking penalty and interest were not satisfied. Rule 173Q did not change the character of the penalty, which was treated as falling under Section 11AC. The penalty and interest demand were therefore set aside.

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Issues: Whether penalty under Section 11AC and interest under Section 11AB of the Central Excise Act, 1944 were exigible when the duty admittedly unpaid was debited before issuance of the show cause notice.

Analysis: The duty short-paid was found to have been paid before the show cause notice was issued. The liability to penalty under Section 11AC and interest under Section 11AB was treated as arising in the context of duty evasion confirmed under Section 11A(2). Since the payment had already been made before the demand notice, the statutory conditions for invoking Sections 11AC and 11AB were not satisfied. The invocation of Rule 173Q did not alter the character of the penalty, which was held to be under Section 11AC only.

Conclusion: Penalty under Section 11AC and interest under Section 11AB were not attracted and were liable to be set aside, in favour of the assessee.

Final Conclusion: The impugned penalty and interest demand were annulled with consequential relief to the assessee.

Ratio Decidendi: Where the duty short-paid is paid before issuance of the show cause notice, the statutory conditions for penalty under Section 11AC and interest under Section 11AB are not attracted.

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