Section 11AC penalty not sustainable without proviso-based demand or allegation of suppression with intent to evade duty.

Penalty under Section 11AC of the Central Excise Act was not leviable where the show cause notice demanded duty under Section 11A(1) without invoking the proviso and contained no allegation of suppression, fraud, wilful misstatement, or intent to evade duty. In the absence of the statutory ingredients required for the extended period and mandatory penalty, Section 11AC could not be sustained. Voluntary payment of duty did not change this position, and the penalty was set aside in favour of the assessee.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable when the show cause notice invoked Section 11A(1) and did not invoke the proviso to Section 11A(1), and there was no allegation of suppression of facts with intent to evade duty.

Analysis: Penalty under Section 11AC is attracted only where the duty demand is raised under the proviso to Section 11A(1), which contemplates suppression, fraud, wilful misstatement, or similar conduct with intent to evade duty. The show cause notice in this matter demanded duty under Section 11A(1) without invoking the proviso and did not allege suppression of facts with intent to evade payment. In the absence of the statutory ingredients required for the extended period and for penalty under Section 11AC, mandatory penalty could not be sustained. The voluntary payment of duty by the assessee did not alter this legal position.

Conclusion: Penalty under Section 11AC was not leviable, and the penalty of Rs. 1.25 lakhs was set aside in favour of the assessee.

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