Pre-notice duty payment concludes penalty proceedings, while presumed manufacture and settled cess credit cannot sustain excise demands.

Payment of short-paid central excise duty and interest before a show-cause notice under the proviso to Section 11AC(1)(a) precludes penalty and concludes proceedings on that duty and interest. Prior departmental knowledge of the short-payment also prevents invocation of the extended limitation period based on suppression. A director's penalty under Rule 26 is unsustainable absent a finding of knowing involvement with goods liable to confiscation. Duty cannot be demanded merely from unaccounted raw materials found in a factory without evidence of manufacture and clearance of finished goods. Credit of Swachh Bharat Cess cannot be redemanded where it was paid during audit and the objection was settled.

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Issues: (i) Whether penalty, further interest, and proceedings concerning the short-paid central excise duty survived where duty and interest were paid before issuance of the show-cause notice; (ii) Whether duty could be demanded on final goods presumed to be manufactured from unaccounted raw materials lying in the factory; (iii) Whether the demand for wrongly availed credit of Swachh Bharat Cess could be sustained despite its prior payment and settlement in audit.

Issue (i): Whether penalty, further interest, and proceedings concerning the short-paid central excise duty survived where duty and interest were paid before issuance of the show-cause notice.

Analysis: The proviso to Section 11AC(1)(a) applies where duty and interest are paid before issuance of the show-cause notice, and provides that no penalty is payable and proceedings concerning that duty and interest stand concluded. The duty and interest had been paid before the notice. The Department was also aware of the short-payment through prior correspondence; consequently, the extended period could not be invoked in a subsequent notice on an allegation of suppression. As the company incurred no penalty for the short-payment, the director's penalty under Rule 26 was also unsustainable, there being no finding that he dealt with goods liable to confiscation with the requisite knowledge.

Conclusion: The company was not liable for further interest or penalty on the short-paid duty, and the related proceedings, including the director's penalty, stood concluded in favour of the assessee.

Issue (ii): Whether duty could be demanded on final goods presumed to be manufactured from unaccounted raw materials lying in the factory.

Analysis: Central excise duty is attracted upon manufacture and is payable at the time of clearance of final goods. The unaccounted raw materials were found lying in the factory, without evidence establishing manufacture and clearance of finished goods from them.

Conclusion: The demand of duty, interest, and penalty founded on presumed manufacture from the unaccounted raw materials was unsustainable, in favour of the assessee.

Issue (iii): Whether the demand for wrongly availed credit of Swachh Bharat Cess could be sustained despite its prior payment and settlement in audit.

Analysis: The credited amount had already been paid during audit, and the relevant audit objection had been treated as settled.

Conclusion: The demand for the credit, with interest and penalty, was unsustainable, in favour of the assessee.

Final Conclusion: No further central excise duty, interest, or penalty remained payable by either appellant on the matters adjudicated.

Ratio Decidendi: Where duty and interest are paid before the show-cause notice in a case falling under the proviso to Section 11AC(1)(a), penalty is unavailable and proceedings concerning that duty and interest are deemed concluded.

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