Bona fide excise dispute and no mala fide intent can make penalty under Rule 173Q unsustainable.

Penalty under Rule 173Q of the Central Excise Rules, 1944 was held unsustainable where the dispute over manufacture was found to be bona fide and no mala fide intention was attributed to the assessee. The appellate authority's finding that the controversy was purely legal and that the assessee had not acted with dishonest intent was not challenged by the Revenue. In the absence of any basis for penal action, the penalty was set aside in favour of the assessee.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules, 1944 was sustainable where the dispute was bona fide and no mala fide was attributed to the assessee.

Analysis: The appellate authority had recorded a clear finding that the dispute regarding manufacture was bona fide and that no mala fide was attributable to the assessee. That finding was not challenged by the Revenue. In such circumstances, the basis for penal action was absent, since penalty is not justified where the controversy is purely legal and bona fide and the assessee is not shown to have acted with any dishonest intention.

Conclusion: The penalty was not sustainable and was rightly set aside in favour of the assessee.

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