Bona fide classification dispute bars mandatory penalty where duty was voluntarily paid and suppression was not established.

Penalty under Section 11AC of the Central Excise Act, 1944 was not leviable where the dispute arose from bona fide product classification and the assessee had voluntarily paid duty. On those facts, the matter was treated as a genuine classification dispute rather than suppression or wilful evasion attracting mandatory penalty. The Commissioner (Appeals) was therefore justified in setting aside the penalty.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable in a case involving a bona fide classification dispute and voluntary payment of duty.

Analysis: The dispute related to classification of the product, and the record showed that the assessee had paid the duty voluntarily. On these facts, the matter was treated as a genuine classification dispute rather than a clear case of suppression warranting mandatory penalty. The Commissioner (Appeals) was therefore justified in setting aside the penalty imposed under Section 11AC.

Conclusion: Penalty under Section 11AC of the Central Excise Act, 1944 was not leviable.

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