Bona fide classification dispute with disclosure to the department does not by itself justify penalty under Rule 25.

Penalty under Rule 25 of the Central Excise Rules, 2002 is not attracted merely because excisable goods are classified under a disputed heading where the assessee has disclosed its classification to the department and paid duty accordingly. The rule applies only where the statutory ingredients are proved, including removal in contravention of the rules, failure to account for goods, manufacture without registration, or another contravention coupled with intent to evade duty. On the stated facts, no such ingredients were established, so confiscation and penalty were unwarranted.

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Issues: Whether penalty under Rule 25 of the Central Excise Rules, 2002 was sustainable where the dispute related to classification of excisable goods and the assessee had disclosed its classification to the department.

Analysis: The classification of the goods was a matter of dispute and had been subject to differing views before being settled by a Larger Bench. The assessee had adopted a classification and paid duty accordingly under intimation to the department. Penalty under Rule 25 is attracted only where there is removal of goods in contravention of the Rules, failure to account for goods, manufacture without registration, or other contravention with intent to evade duty. On the facts, none of the ingredients necessary to invoke confiscation or penalty under that Rule was established.

Conclusion: Penalty under Rule 25 was not leviable and was set aside in favour of the assessee.

Ratio Decidendi: A bona fide dispute regarding classification of excisable goods, when pursued under intimation to the department, does not by itself attract penalty under Rule 25 unless the statutory ingredients of contravention and intent to evade duty are proved.

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