Penalty not leviable where duty on free samples was paid before notice and no mala fide intent to evade duty was shown.

Penalty under the Central Excise Rules was found unwarranted where finished goods were cleared as free samples without duty, but the duty was paid immediately on discovery of the mistake and before issuance of the show cause notice. The authority accepted that the clearance occurred under a bona fide belief that free supplies were not dutiable and that there was no mala fide intention to evade duty. On those facts, voluntary payment before notice and absence of intent to evade meant penal action was not attracted, and the penalty was set aside in favour of the assessee.

---

---

Issues: Whether penalty under the Central Excise Rules was sustainable when duty on clearance of samples was paid immediately on discovery of the mistake, before issuance of the show cause notice, and the clearance was made under a bona fide belief without mala fide intention.

Analysis: The assessee cleared finished goods as free samples without payment of duty and without issuing invoice, but the duty was deposited immediately after the error was noticed and before issuance of the show cause notice. The Commissioner (Appeals) found that the clearance was under a bona fide belief that free supplies were not dutiable and that there was no intention to evade duty. In these circumstances, penalty was held to be unwarranted, consistent with the view that where duty is voluntarily paid before notice and mala fide is absent, penal action is not attracted.

Conclusion: Penalty was not leviable and the order setting aside the penalty was upheld in favour of the assessee.

Ratio Decidendi: Where duty is paid immediately upon discovery of the mistake and before issuance of the show cause notice, and the clearance occurs under a bona fide belief without mala fide intent, penalty under the Central Excise Rules is not imposable.

---