Penalty under Rule 173Q requires intention to evade duty, not mere non-maintenance of records.

Penalty under Rule 173Q could not be sustained where the duty demand had already been dropped and the only surviving allegation was non-maintenance of records. The CESTAT held that mere failure to keep records, without any resultant evasion of duty or intention to evade duty, did not justify the harsher penalty under Rule 173Q. Rule 226 was the provision addressing non-maintenance of records and contemplated only a lesser penalty. In the absence of proof of evasion or culpable intent, the penalty order was set aside and the appellant succeeded.

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Issues: Whether penalty under Rule 173Q could be sustained when the duty demand had been dropped and the alleged non-maintenance of records had not resulted in evasion of duty.

Analysis: The proceedings for demand of duty against the assessee had already been dropped. The only surviving basis for penalty was non-maintenance of records. On the facts found, the omission to maintain records had not caused any evasion of duty and there was no intention to evade duty. Rule 226, which deals with non-maintenance of records, contemplated only a lesser penalty, whereas Rule 173Q was attracted only where the conduct involved an intention to evade duty. In these circumstances, invocation of Rule 173Q was not justified.

Conclusion: Penalty under Rule 173Q was not imposable and was set aside in favour of the appellant.

Final Conclusion: The appeal succeeded and the penalty order could not be sustained.

Ratio Decidendi: Penalty under Rule 173Q cannot be imposed for mere non-maintenance of records unless the conduct is connected with an intention to evade duty, especially where the duty demand itself has been dropped.

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