Penalty under Central Excise law was unsustainable under Section 11D, while the duty demand was remitted for fresh adjudication.

Penalty was not sustainable under Section 11D of the Central Excise Act, 1944 read with Rule 173Q, because the statutory penalty mechanism for duty evasion was treated as operating under Section 11AC in relation to Section 11A; the deletion of penalty was therefore upheld. The demand under Section 11A and the applicability of Section 11AC were remitted for fresh adjudication because the assessee had complained of denial of fair opportunity and the record indicated incomplete consideration of the pleadings. The adjudicating authority was directed to examine the alleged clandestine removal issue afresh after giving a hearing and passing a speaking order.

---

---

Issues: (i) Whether penalty could be sustained under Section 11D of the Central Excise Act, 1944 read with Rule 173Q of the Central Excise Rules, 1944. (ii) Whether the demand under Section 11A of the Central Excise Act, 1944 and the applicability of Section 11AC required reconsideration in view of the alleged denial of natural justice and the charge of clandestine removal.

Issue (i): Whether penalty could be sustained under Section 11D of the Central Excise Act, 1944 read with Rule 173Q of the Central Excise Rules, 1944.

Analysis: The statutory scheme recognised penalty in cases of duty evasion under Section 11AC in relation to Section 11A, and not under Section 11D. On that basis, and in light of the cited precedent, the waiver of penalty by the appellate authority was found to be justified.

Conclusion: The Revenue's challenge to the deletion of penalty failed, and the order setting aside the penalty was upheld.

Issue (ii): Whether the demand under Section 11A of the Central Excise Act, 1944 and the applicability of Section 11AC required reconsideration in view of the alleged denial of natural justice and the charge of clandestine removal.

Analysis: The grounds disclosed that the assessee had not been afforded full consideration of the pleadings and had complained of denial of fair opportunity. The matter was therefore considered appropriate for fresh examination by the adjudicating authority on the charge of clandestine removal and the applicability of Section 11AC, with an opportunity of hearing and a speaking order.

Conclusion: The demand issue was remitted for fresh adjudication.

Final Conclusion: The penalty dispute was resolved against the Revenue, while the remaining duty demand was sent back for reconsideration, leaving the assessee partially successful overall.

---