Section 11AC penalty not sustained where delayed duty payment lacked fraud or intent to evade; Rule 27 penalty applied instead.

Penalty under Section 11AC of the Central Excise Act, 1944 was found inapplicable where the default was only delayed payment of duty and the duty and interest had been paid before adjudication. Because the clearances were made under invoices and returns reflected the liability, the facts did not establish fraud, suppression, wilful misstatement, or intent to evade duty. The appropriate consequence was the lesser penalty under Rule 27 of the Central Excise Rules, 2002, which is capped at Rs. 5,000 for such contraventions. The original Section 11AC penalty was therefore not sustained.

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Issues: Whether penalty imposed under Section 11AC of the Central Excise Act, 1944 was sustainable where duty and interest were paid before adjudication and the default consisted of delayed payment of duty without fraud, suppression, misstatement, or intent to evade duty.

Analysis: The default was found to be only delay in payment of duty, with clearances made under invoices and returns reflecting the liability. In such circumstances, the case did not fall within the ingredients of fraud, suppression, or wilful misstatement with intent to evade duty required for the harsher penalty provision. The applicable consequence was held to be the lesser penalty under Rule 27 of the Central Excise Rules, 2002, which contemplates a maximum penalty of Rs. 5,000/- for such a contravention.

Conclusion: Penalty under Section 11AC was not upheld in its original quantum, and the penalty was restricted to Rs. 5,000/- under Rule 27 of the Central Excise Rules, 2002.

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