Section 11AC penalty turns on intent to evade, and prior duty payment did not save the assessee here.

Penalty under Section 11AC of the Central Excise Act was considered sustainable where duty had been paid before the show cause notice but the assessee had consciously taken Cenvat credit without maintaining separate records for inputs used in exempted and dutiable goods. The Tribunal applied the principle that Section 11AC penalty depends on deliberate deception, suppression of facts, or intent to evade duty, and not merely on the timing of payment. It rejected the plea of ignorance on the facts presented and upheld the view that intentional evasion made the penalty applicable.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable where the duty had been paid before issuance of the show cause notice and the assessee claimed ignorance of the obligation to maintain separate records for inputs used in exempted and dutiable goods.

Analysis: The Tribunal applied the principle that penalty under Section 11AC is attracted where the non-payment of duty results from deliberate deception, suppression of facts, or other conduct with intent to evade duty. It noted that the assessee had consciously availed Cenvat credit while failing to maintain separate records for inputs used in exempted and dutiable final products, and that the explanation of ignorance was not acceptable in the circumstances. The Tribunal relied on the governing law that the existence of intentional evasion, not merely the timing of payment before the show cause notice, determines the applicability of penalty.

Conclusion: Penalty under Section 11AC was rightly imposed and the assessee's challenge failed.

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