Penalty under section 11AC requires proof of evasion intent; prior duty and interest payment supported waiver.

Penalty under section 11AC of the Central Excise Act, 1944 is sustainable only where the department establishes fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty. Here, the assessee had paid the differential duty with interest before issuance of the show cause notice, and the concurrent findings recorded no such culpable intent in relation to the clearance of physician samples. On those facts, waiver of penalty by the lower appellate authorities was justified, and the penalty was held not leviable. The Court also noted departmental monetary limit instructions, but the decisive basis remained the absence of the statutory preconditions for penalty.

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Issues: Whether penalty under section 11AC of the Central Excise Act, 1944 was liable to be sustained when the duty and interest had been paid before issuance of the show cause notice and the finding was that there was no intention to evade duty.

Analysis: The assessee had already discharged the differential duty with interest much before the show cause notice. The concurrent findings recorded that the clearances of physician samples did not involve fraud, collusion, wilful misstatement, suppression of facts, or any contravention with intent to evade duty. Penalty under section 11AC is attracted only when such culpable circumstances exist. On those facts, the waiver of penalty by the lower appellate authorities was justified. The Court also noted the departmental monetary limit instructions, though the substantive conclusion rested on absence of the statutory conditions for penalty.

Conclusion: Penalty under section 11AC was not leviable and the waiver of penalty was upheld.

Ratio Decidendi: Penalty under section 11AC of the Central Excise Act, 1944 cannot be imposed unless the department establishes fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty, and prior payment of duty and interest before notice supports refusal of penalty where such intent is absent.

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