Mandatory excise payment mode breached, so interest was upheld, while the penalty was reduced on the facts.

Where the fortnightly payment facility had been withdrawn, excise duty had to be paid on each consignment by debit to the prescribed account current; payment through the Cenvat account did not cure non-compliance with that mandatory mode of payment. The clearances were therefore treated as made without payment of duty for that period, and interest was recoverable on the outstanding amount. On penalty, the tribunal considered the duty had been paid and no unjust enrichment or undue benefit was shown, so the full penalty was excessive and was reduced to Rs. 50,000.

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Issues: (i) Whether interest was recoverable where excise duty, though not debited from the PLA as required, was paid through the Cenvat account; (ii) Whether the penalty required to be sustained in full or reduced in the facts of the case.

Issue (i): Whether interest was recoverable where excise duty, though not debited from the PLA as required, was paid through the Cenvat account.

Analysis: The fortnightly payment facility had been withdrawn, and during that period the manufacturer was required to pay duty on each consignment by debit to the account current. On default, the clearances were to be treated as made without payment of duty, attracting the statutory consequence of interest on the outstanding amount. Payment through the Cenvat account did not cure the breach of the mandatory mode of payment prescribed for the period of withdrawal.

Conclusion: The interest demand was upheld and decided against the assessee.

Issue (ii): Whether the penalty required to be sustained in full or reduced in the facts of the case.

Analysis: Although the mode of payment adopted was not in accordance with the rule, the duty was paid and there was no demonstrated unjust enrichment or benefit from the default during the relevant period. Taking the overall facts and circumstances into account, the full penalty was considered excessive.

Conclusion: The penalty was reduced to Rs. 50,000 and the assessee obtained partial relief.

Final Conclusion: The duty-related default attracted statutory interest, but the penalty was scaled down in view of the surrounding circumstances, resulting in only partial relief to the assessee.

Ratio Decidendi: Where the prescribed mode of excise duty payment is not followed during withdrawal of the payment facility, the clearances are deemed to be without payment of duty and interest is recoverable notwithstanding payment through another account, though penalty may be moderated on the facts.

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