Rule 25 penalty for alleged diversion of export sugar fails where duty was paid and no wrongful rebate or refund was claimed.

Penalty under Rule 25 of the Central Excise Rules, 2001 was unsustainable where the factory had cleared sugar on payment of appropriate excise duty and there was no allegation of wrongful refund or rebate without export. Liability for the additional duty arose from the merchant exporter's failure to export, which was dealt with separately, and the demand under the Sugar Export Promotion Act, 1958 had already been dropped. On those facts, the inference of diversion for home consumption and suppression with intent to evade duty could not be sustained, so the penalty was set aside.

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Issues: Whether penalty under Rule 25 of the Central Excise Rules, 2001 was sustainable against the sugar factory for the alleged diversion of export sugar and contravention of excise provisions.

Analysis: The liability for additional duty arose from the merchant exporter's failure to export, and the demand against the factory under the Sugar Export Promotion Act, 1958 had already been dropped. The exporter's default was dealt with separately. The factory had cleared the sugar on payment of appropriate excise duty, and there was no allegation that it had sought or obtained refund or rebate without export. In these circumstances, the inference of diversion for home consumption and the finding of suppression with intent to evade duty were held to be unsustainable.

Conclusion: The penalty under Rule 25 was not justified and was set aside in favour of the assessee.

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