Penalty under Section 11AC requires wilful suppression or intent to evade duty; mere excess credit reversal is insufficient.

Penalty under Section 11AC of the Central Excise Act was held unsustainable because the record did not show fraud, collusion, wilful misstatement, suppression of facts, or any deliberate conduct with intent to evade duty. The excess Cenvat credit had been reversed when pointed out and interest was paid, which weakened any inference of evasion. Penalty was also questioned under Rule 13(2) of the Cenvat Credit Rules, 2002 because that provision had already been omitted with effect from 1.3.2003. The penalty demand was therefore found unsustainable on merits, although refund of penalty already paid was not granted.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of wilful misstatement or suppression of facts with intent to evade duty, and whether penalty could be sustained under Rule 13(2) of the Cenvat Credit Rules, 2002 after its omission.

Analysis: Penalty under Section 11AC is attracted only when the non-payment or wrong availment of duty is accompanied by fraud, collusion, wilful misstatement, suppression of facts, or contravention of the rules with intent to evade duty. On the facts, the credit had been taken on invoices issued by a 100% EOU, the excess credit was reversed when pointed out, and interest was paid. The conduct did not establish deliberate deception or intent to evade duty. The notice also invoked Rule 13(2) of the Cenvat Credit Rules, 2002 after that provision had already been omitted with effect from 1.3.2003, which weakened the foundation for penalty.

Conclusion: Penalty under Section 11AC was not leviable and the appeal succeeded to that extent. The amount of penalty already paid was not ordered to be refunded because that relief had not been pursued.

Final Conclusion: The penalty demand was held unsustainable on merits, but the assessee did not obtain refund of the penalty already paid.

Ratio Decidendi: Penalty for duty-related contraventions is permissible only where the record establishes wilful suppression, misstatement, or equivalent deliberate conduct with intent to evade duty; absent such ingredients, Section 11AC cannot be invoked.

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