Section 11AC penalty inapplicable where goods stayed in factory control and duty was paid before clearance

Penalty under Section 11AC of the Central Excise Act was held not exigible where goods, though unaccounted in the RG-1 register, remained within the factory under physical control and duty was paid before clearance. The provision applies only where non-payment or short-payment results from fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty; on these facts, that essential mens rea was absent. The penalty was therefore set aside in favour of the assessee.

---

---

Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable when the goods remained within the factory premises, were under physical control, and duty was paid before clearance.

Analysis: Section 11AC applies only where duty has not been paid or has been short-paid or short-levied by reason of fraud, collusion, willful misstatement, suppression of facts, or contravention of the Act or Rules with intent to evade duty. The goods in question were found unaccounted in the RG-1 register but were still within the factory premises and under the physical control regime. The duty was subsequently discharged when the goods were cleared provisionally. On these facts, the essential ingredients for invoking the penal provision, particularly intent to evade duty, were absent.

Conclusion: Penalty under Section 11AC was not exigible and was set aside in favour of the assessee.

---