Penalty under Section 11AC cannot stand when the demand period spans its introduction date without period-wise segregation.

Penalty under Section 11AC of the Central Excise Act, 1944 could not be sustained where the duty demand period covered both pre- and post-introduction periods of that provision and no bifurcation was made between them. Because Section 11AC could not apply to conduct before 28-9-1996, a combined equivalent penalty based on an undivided demand period was not supportable on the record. Penalty under Rule 173Q was also set aside as imposed alongside the Section 11AC penalty without separate segregation of the relevant period-wise liability.

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Issues: Whether penalty could be sustained under Section 11AC of the Central Excise Act, 1944 and Rule 173Q of the Central Excise Rules, 1944 when the demand period straddled the date of introduction of Section 11AC and no bifurcation was made between the pre- and post-introduction periods.

Analysis: The demand of duty was not disputed and was upheld. On penalty, the adjudicating authority had applied both Section 11AC and Rule 173Q without separating the amount relatable to the period before 28-9-1996 and the period after that date. Since Section 11AC could not apply to conduct prior to its introduction, and no segregation of the penalty base was made for the post-introduction period, a combined equivalent penalty could not be sustained on the record.

Conclusion: Penalty under Section 11AC and Rule 173Q was not sustainable as imposed and was set aside.

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