Section 11AC penalty sustained for duty short-payment, but reduced where the default was limited in extent.

Penalty under Section 11AC was sustained where the assessee had accepted the notification conditions requiring it to bear the duty burden on clearances from the job worker's premises, and duty was not paid in full at clearance. The plea of bona fide mistake was rejected because the conditions under Notification No. 214/86 were clear and had been acknowledged. However, the penalty quantum was moderated on the facts, as the number of clearances was limited and the unpaid duty component was small. The result was affirmation of penalty liability with reduction of the amount.

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Issues: Whether penalty under Section 11AC was justified in the circumstances of clearance of intermediate goods under Rule 57F(4) and Notification No. 214/86, and whether the quantum of penalty required reduction.

Analysis: The supplier-manufacturer had undertaken, under the notification, to bear the duty burden on clearances from the job worker's premises. The record showed that duty was not paid in full at the time of clearance and the explanation of bona fide mistake was not accepted, as the conditions of the notification were clear and had been acknowledged by the assessee. The order also noted that the facts attracted the statutory basis for penalty under Section 11AC. At the same time, the number of clearances was limited and the unpaid duty component was small, which justified moderation of the penalty amount.

Conclusion: Penalty under Section 11AC was upheld, but the amount of penalty was reduced to Rs. 20,000.

Final Conclusion: The assessee did not succeed in avoiding penalty, though the penalty was scaled down in view of the limited extent of the default.

Ratio Decidendi: Where the notification conditions placing the duty burden on the assessee are clear and accepted, penalty under Section 11AC is sustainable absent bona fide mistake, though the quantum may be moderated on the facts.

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