Section 11AC penalty requires proof of intent to evade duty; mere non-payment does not justify penalty.

Penalty under Section 11AC of the Central Excise Act was held unsustainable where duty and interest were confirmed but the record did not show mala fide intent, fraud, or an intent to evade duty. The authorities found no involvement in procuring or producing any fake CT-2 certificate, and the only lapse was failure to track re-warehousing certificates. On those facts, mere non-payment of duty and interest was insufficient to justify penalty; the requisite culpable intent had to be recorded. The penalty was deleted, while the duty and interest demand remained unaffected.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was attracted in the absence of a finding of mala fide intention or intent to evade duty.

Analysis: The demand of duty and interest had already been confirmed on the footing that the goods were cleared without payment of duty, but the authorities found that the respondent was not shown to have been involved in procuring or producing any fake CT-2 certificate. The only lapse noticed was failure to track re-warehousing certificates. On that factual basis, and applying the principle that penalty under Section 11AC is attracted only when the adjudicating authority records the necessary culpable intent for evasion, the Court agreed that mere liability to duty and interest did not by itself establish a case for penalty. The absence of mala fide or fraud was treated as decisive.

Conclusion: Penalty under Section 11AC was not sustainable against the respondent, and the Department's appeal failed.

Final Conclusion: The dismissal of the appeal left intact the deletion of penalty, while the duty and interest demand remained unaffected.

Ratio Decidendi: Penalty under Section 11AC cannot be sustained unless the facts establish the requisite culpable intent to evade duty; mere non-payment of duty and interest, without mala fide, is insufficient.

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