Suppression of facts and intent to evade duty justified penalty for clearing defective inputs without duty reversal.

Penalty under Section 11AC of the Central Excise Act was upheld where the assessee cleared defective inputs without reversing CENVAT credit or paying duty under Rule 3(5) of the CENVAT Credit Rules, 2002. The record showed invoices reflecting the value and duty payable on the clearances, which supported knowledge of the duty liability. Suppression of facts with intent to evade duty was further corroborated by the admission of the Chairman and Managing Director. On these facts, the ingredients for penalty were held to be established and the challenge failed.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was justified on the ground of suppression of facts and intention to evade duty in respect of clearance of defective inputs without reversal of CENVAT credit or payment of duty under Rule 3(5) of the CENVAT Credit Rules, 2002.

Analysis: The assessee had availed CENVAT credit on inputs and cleared the defective inputs without discharging the duty liability. The record showed that the assessees had issued invoices reflecting the value and duty payable on such clearances, which indicated awareness of the duty liability. The finding of suppression was further reinforced by the admission of the Chairman and Managing Director of the company. On these facts, suppression of facts with intent to evade duty was held to be established.

Conclusion: Penalty under Section 11AC was rightly imposed and the appeal was not sustainable.

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