Penalty under excise rules requires proof of intent to evade; prompt duty payment and Modvat credit defeated penalty.

Penalty under Rule 173Q of the Central Excise Rules was held unsustainable where the assessee had disclosed the valuation method, filed the relevant returns and documents, and promptly debited and paid the differential duty when pointed out by the department. The availability of equivalent Modvat credit in the recipient plant negatived any inference of deliberate evasion, and the record showed no material indicating an intention to evade duty. Penalty could not be justified merely because delayed payment caused loss of interest. The impugned penalty order was set aside.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules was sustainable where the differential duty was paid promptly on being pointed out and the equivalent amount was available as Modvat credit in the recipient plant, with no material showing intention to evade duty.

Analysis: The assessee had filed the relevant returns and documents, and the clearance valuation method was disclosed. On being pointed out by the department, the differential duty was immediately debited and paid. The equivalent duty was available for credit in the sodium cyanide plant, which negatived any inference of deliberate evasion. The record did not show that the assessee had adopted the valuation method with an intention to evade duty. In these circumstances, penalty could not be justified merely on the ground of loss of interest arising from delayed payment.

Conclusion: Penalty under Rule 173Q was not leviable and the assessee succeeded.

Final Conclusion: The impugned penalty order was set aside and the appeal was allowed.

Ratio Decidendi: Penalty for excise duty default cannot be sustained in the absence of material showing intention to evade duty, particularly where the differential duty is promptly paid and the corresponding credit is available under the Modvat scheme.

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