Penalty cannot rest on grounds absent from the show cause notice; unalleged mala fides cannot sustain liability.

Penalty under Central Excise law cannot be sustained where the show cause notice does not allege suppression, misstatement, fraud or mala fides, and the adverse finding is based on a ground outside the notice. The assessee had paid the differential duty soon after noticing an error in valuation, and the only basis for penalty was an appellate inference of mala fide intention. As that inference was not supported by the notice, it could not validly found penal liability. The impugned penalty order was therefore set aside and relief granted to the assessee.

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Issues: Whether the penalty imposed under the Central Excise law could be sustained when the show cause notice contained no allegation of suppression, misstatement, fraud or mala fides, and the appellate finding of mala fide intention was beyond the notice.

Analysis: The differential duty had been paid soon after the assessee realised the error in adopting 6.06% as notional profit instead of 15% for valuation under the prescribed excise valuation rule. No allegation of suppression of facts, misstatement, fraud or similar culpable conduct had been raised in the show cause notice. The only basis relied upon to sustain the penalty was an appellate finding that the assessee had wanted to use government money to its advantage with mala fide intention, but that finding was not supported by the notice and therefore could not form a valid foundation for penalty. In the absence of the necessary factual and legal basis, the penalty could not be upheld.

Conclusion: The penalty was not sustainable and the appeal succeeded.

Final Conclusion: The impugned order sustaining penalty was set aside and the assessee was granted relief.

Ratio Decidendi: A penalty cannot be sustained on grounds not alleged in the show cause notice, and absent allegations of suppression, misstatement, fraud or mala fides, a finding of penal liability is legally untenable.

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