Section 11AC penalty requires proof of fraud or suppression; absent such ingredients, the penalty could not stand.

Penalty under Section 11AC of the Central Excise Act was unsustainable because the statutory prerequisites were not established. The shortages found during inspection were explained by reference to the records, and there was no evidence of clandestine removal. As fraud, collusion, wilful misstatement, suppression of facts, or contravention of the Act or Rules with intent to evade duty was not shown, the precondition for invoking Section 11AC was absent. The penalty confirmation was therefore set aside.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of fraud, collusion, wilful misstatement, suppression of facts, or contravention of the Act or Rules with intent to evade duty.

Analysis: The shortages detected during the visit were explained by the appellant with reference to its records, and the lower appellate authority had recorded that there was no evidence of clandestine removal. Penalty under Section 11AC can be imposed only when the statutory ingredients are established, namely fraud, collusion, wilful misstatement, suppression of facts, or contravention of the Act or Rules with intent to evade duty. Since those ingredients were not shown on the record, the precondition for invoking Section 11AC was absent.

Conclusion: Penalty under Section 11AC was not warranted and the order confirming the penalty was set aside.

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