Bona fide exchange-rate mistake defeats Rule 25 penalty where duty short-payment lacked mala fide intent.

Penalty under Rule 25 was held unsustainable where the short payment of duty resulted from use of an incorrect foreign exchange conversion rate. The duty demand was not disputed, but the assessee had applied a rate from an earlier notification instead of the rate prescribed by Notification No. 68/2003-Cus. (N.T.) dated 26-8-03. As the goods were cleared on proper invoices and the error was treated as a bona fide mistake without material showing mala fide intent, penal action was not justified and the penalty was set aside.

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Issues: Whether penalty under Rule 25 was sustainable where the short payment of duty arose from application of an incorrect foreign exchange conversion rate.

Analysis: The duty demand was not disputed. The short payment occurred because the assessee applied an exchange rate from an earlier notification instead of the correct rate prescribed by Notification No. 68/2003-Cus. (N.T.) dated 26-8-03. The goods were cleared on proper invoices, and the lapse was treated as a bona fide mistake without any material indicating mala fide intent so as to justify penal action.

Conclusion: The penalty was not sustainable and was set aside.

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