Section 11AC penalty not attracted where clerical valuation error was disclosed and duty was paid before the show cause notice.

Equal penalty under Section 11AC of the Central Excise Act was held not attracted where short payment arose from a bona fide clerical error in valuing clearances to sister units under Rule 8, and the assessee corrected the mistake and paid the differential duty and interest before issue of the show cause notice. The record showed that the stock transfers were disclosed in returns and correspondence, and there was no fraud, wilful misstatement, suppression of facts, or intent to evade duty. On those facts, pre-notice payment coupled with absence of mens rea defeated mandatory penalty, and the departmental appeal failed.

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Issues: Whether equal penalty under Section 11AC of the Central Excise Act, 1944 was imposable on the assessee despite payment of differential duty and interest before issuance of the show cause notice, where the short payment arose from a clerical error in valuation and the department was aware of the stock transfers.

Analysis: The liability arose from valuation of clearances made to sister units under Rule 8 of the Central Excise (Determination of Value of Excisable Goods) Rules, 2000. The short payment was found to have resulted from a bona fide clerical mistake in adopting 110% instead of 115% of cost, and the assessee corrected the error and paid the differential duty before the show cause notice. The transactions were reflected in the returns and correspondence with the department, and the record did not show fraud, wilful misstatement, suppression of facts, or any intent to evade duty. In these circumstances, the case fell within the principle that pre-show-cause payment with no intent to evade does not justify mandatory penalty under Section 11AC, and the authorities cited for compulsory penalty were held inapplicable on the facts.

Conclusion: Penalty under Section 11AC was not exigible and the departmental appeal failed.

Ratio Decidendi: Where short payment is caused by a bona fide and disclosed clerical mistake, and duty and interest are paid before issuance of the show cause notice without any intent to evade duty, equal penalty under Section 11AC is not attracted.

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