Penalty under Section 11AC requires suppression or fraud; duty payment and absence of culpable conduct defeat the levy.

Penalty under Section 11AC of the Central Excise Act was held unsustainable because the record did not show suppression, fraud or any similar wilful contravention, and the duty liability had already been discharged. The assessee, a 100% export oriented unit, had used polished granite slabs within bonded premises and paid duty after the department raised the issue, while also undertaking to pay interest for the relevant period. In these circumstances, and with no culpable conduct established, the penalty under Section 11AC could not be invoked, and the related penalty under Rule 25 of the Central Excise Rules also supported setting aside the levy.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of suppression, fraud or other wilful contravention, where the duty had been paid and the assessee undertook to pay interest.

Analysis: The appellants, a 100% export oriented unit, had used some polished granite slabs within the bonded premises and paid the duty amount after the department pointed out that such duty-free use was not admissible. The appellants also undertook to pay interest for the relevant period. In these circumstances, and in the absence of any allegation of suppression, fraud or similar culpable conduct, the conditions for imposing penalty under Section 11AC were not satisfied. The setting aside of penalty under Rule 25 of the Central Excise Rules, 2002 by the lower appellate authority also supported this view.

Conclusion: Penalty under Section 11AC was not leviable and was set aside, resulting in allowance of the appeal in favour of the assessee.

Ratio Decidendi: Penalty under Section 11AC of the Central Excise Act, 1944 is not justified when the case does not disclose suppression, fraud or similar culpable conduct and the duty liability has been discharged.

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