Penalty under Section 11AC requires proof of suppression, while Rule 173Q can apply without mens rea.

Penalty under Section 11AC of the Central Excise Act was not sustainable because suppression with intent to evade duty was not established; the scrap was stored and auctioned under a known practice, permission to continue the practice had been sought, and duty was paid on sale, so the penalty was set aside. Penalty under Rule 173Q of the Central Excise Rules was sustainable because excisable goods had been removed without payment of duty; mens rea was not required for that contravention, so the penalty was upheld. The duty demand was not disputed and the appeal succeeded only in part.

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Issues: (i) Whether penalty under Section 11AC of the Central Excise Act was sustainable on the facts found. (ii) Whether penalty under Rule 173Q of the Central Excise Rules was sustainable for removal of excisable goods without payment of duty.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act was sustainable on the facts found.

Analysis: Section 11AC applies where non-levy, short levy, non-payment or short payment of duty is attributable to fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade duty. The scrap was being stored, recorded lot-wise and auctioned under an established practice known to the Revenue. Permission had been sought to continue the practice, duty was being paid on sale, and the goods were not confiscated even after seizure. On these facts, the allegation of suppression with intent to evade duty was not established.

Conclusion: Penalty under Section 11AC of the Central Excise Act was not sustainable and was set aside, in favour of the assessee.

Issue (ii): Whether penalty under Rule 173Q of the Central Excise Rules was sustainable for removal of excisable goods without payment of duty.

Analysis: Rule 173Q authorises penalty where excisable goods are removed in contravention of the Rules. For this penalty, mens rea was held not to be required. Since the scrap had been removed from the factory without payment of duty, the ingredients of the rule were attracted notwithstanding subsequent payment of duty on auction.

Conclusion: Penalty under Rule 173Q of the Central Excise Rules was sustainable and was upheld, in favour of the Revenue.

Final Conclusion: The duty demand was not disputed, the penalty under Section 11AC was deleted, and the penalty under Rule 173Q was sustained, resulting in a partly allowed appeal.

Ratio Decidendi: Penalty under Section 11AC requires proof of fraud, suppression or similar culpable conduct with intent to evade duty, whereas penalty under Rule 173Q can be imposed for contravention of the Rules without proof of mens rea.

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