Mandatory penalty under Central Excise law was not leviable when goods remained in factory and no duty liability arose.

Mandatory penalty under section 11AC of the Central Excise Act, 1944 was held inapplicable where the goods remained lying in the factory and no duty was payable under section 3. The credit had been taken on goods received back under Rule 16(1) of the Central Excise Rules, 2001 and was later reversed with interest after the goods were written off in the books. As no duty liability arose on the facts, the foundation for imposing a mandatory penalty also failed. Revenue's reliance on authority dealing with penalty after confirmation of demand was found inapposite, and the setting aside of the penalty was upheld in favour of the assessee.

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Issues: Whether mandatory penalty under section 11AC of the Central Excise Act, 1944 was leviable when the goods were lying in the factory and duty was not payable.

Analysis: The credit had been taken on goods received back under Rule 16(1) of the Central Excise Rules, 2001 and was later reversed with interest after the goods were written off in the books. The Tribunal held that under section 3 of the Central Excise Act, 1944 duty was not payable on goods still lying in the factory and, once no duty was payable, the basis for imposing mandatory penalty did not arise. The authority relied upon by the Revenue on penalty following confirmation of demand was held inapplicable on these facts.

Conclusion: Mandatory penalty under section 11AC was not leviable, and the order setting aside the penalty was upheld in favour of the assessee.

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