Interest on reversed credit and discretionary penalty reduction under excise law upheld within statutory limits.

Interest under Section 11AB on wrongly taken and later reversed credit on capital goods was held unsustainable because the notice did not allege intent to evade duty and the statutory preconditions for levy were not met. The discussion also clarified that Rule 173Q(1)(a) uses the phrase "penalty not exceeding", which fixes only an upper limit and does not impose a mandatory minimum penalty of Rs. 5,000 in every case. On that basis, a reduced penalty of Rs. 1,000 was within discretion and required no interference.

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Issues: (i) whether interest under Section 11AB of the Central Excise Act, 1944 could be sustained on the facts relating to reversal of credit taken on capital goods; (ii) whether the reduction of penalty under Rule 173Q of the Central Excise Rules, 1944 from Rs. 15,000 to Rs. 1,000 was contrary to the statutory prescription.

Issue (i): whether interest under Section 11AB of the Central Excise Act, 1944 could be sustained on the facts relating to reversal of credit taken on capital goods.

Analysis: The interest demand related to credit wrongly taken on capital goods and later reversed. The notice did not allege that the contravention was committed with intent to evade payment of duty. The relevant rule operating at the time required non-payment within the stipulated period after demand before interest could be levied. In these circumstances, the statutory basis for charging interest was not made out.

Conclusion: Interest under Section 11AB was not sustainable and the setting aside of the interest demand was in law.

Issue (ii): whether the reduction of penalty under Rule 173Q of the Central Excise Rules, 1944 from Rs. 15,000 to Rs. 1,000 was contrary to the statutory prescription.

Analysis: Rule 173Q(1)(a) uses the expression "penalty not exceeding" three times the value of the excisable goods or Rs. 5,000, whichever is greater. The language fixes only the upper limit of penalty and does not prescribe a minimum mandatory penalty of Rs. 5,000 in every case. The authority therefore retained discretion to impose a lesser penalty where justified by the facts.

Conclusion: The reduced penalty was within jurisdiction and no interference was warranted.

Final Conclusion: The appeal failed in full, the interest demand remained set aside, and the reduced penalty order was upheld.

Ratio Decidendi: An expression prescribing penalty "not exceeding" a stated amount fixes only the maximum limit and does not create a mandatory minimum, while interest under Section 11AB cannot be levied absent the statutory preconditions for such liability.

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