Bona fide belief and no intent to evade duty defeat mandatory excise penalty under Section 11AC.

Penalty under Rule 57U read with Section 11AC of the Central Excise Act is attracted only where non-payment of duty is accompanied by fraud, collusion, wilful misstatement, suppression of facts, or intent to evade duty. The Bombay HC noted that the goods were cleared on commercial invoices and the non-payment arose from a bona fide belief that the goods were waste and not dutiable. That factual finding was not shown to be perverse, so the mandatory precondition for penalty was absent. Payment of duty and interest before the show cause notice did not by itself decide the issue, but the absence of intent to evade was decisive, so penalty was not leviable.

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Issues: Whether penalty under Rule 57U read with Section 11AC of the Central Excise Act, 1944 could be imposed where the assessee cleared goods on the basis of a bona fide belief that the goods were not excisable and the duty with interest had been paid before issuance of the show cause notice.

Analysis: Penalty under Section 11AC is attracted only when non-payment of duty is accompanied by fraud, collusion, wilful misstatement, suppression of facts, or intent to evade duty. The finding recorded below was that the goods were removed under commercial invoices and the non-payment of duty resulted from a bona fide understanding that the goods were waste and not dutiable. That factual finding was not shown to be perverse. In such circumstances, the precondition for invoking mandatory penalty was absent. The subsequent payment of duty before the show cause notice did not, by itself, conclude the matter, but the absence of intent to evade was decisive.

Conclusion: Penalty under Rule 57U read with Section 11AC could not be imposed, and the Revenue's challenge failed.

Ratio Decidendi: Penalty under Section 11AC and the corresponding excise penalty rule can be sustained only when non-payment of duty is with intent to evade duty; where the default is found to be bona fide and the factual finding is not perverse, penalty is not leviable.

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