Penalty under Central Excise Act overturned due to appellant's good faith belief.

The penalty imposed under Rule 25 of the Central Excise Act 2002 read with Section 11AC of the Central Excise Act 1944 was deemed unsustainable and set aside. The appellant's bonafide belief that no duty liability was attracted on Spent Earth, despite the amendment of Section 2(f) of the Central Excise Act 1944, was considered. The appellant's lack of malafide intention to evade duty payment during the relevant period was acknowledged. The appeal filed by the appellant was allowed, specifically overturning the penalty imposed.

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Issues:
1. Contesting penalty under Rule 25 of the Central Excise Rules 2002.
2. Interpretation of duty liability on Spent Earth.
3. Application of case law CCE Jalandar vs AG Flats Ltd [2012(277)ELT.96].
4. Bonafide belief of the appellant regarding duty liability.
5. Sustainability of penalty under Section 11AC of the Central Excise Act 1944.

Analysis:
The appellant contested the penalty of Rs. 4275 under Rule 25 of the Central Excise Rules 2002, arguing that duty liability on Spent Earth was not applicable based on a judgment of the Hon'ble Apex Court. The appellant had paid the duty liability along with interest but disputed the penalty. The appellant believed that no duty liability was attracted on Spent Earth, citing the necessity to establish manufacturing activity and marketability before Central Excise Duty could be imposed, as per the judgment of CCE, Chandigarh I vs Markfesd Vanaspati and Allied Industries Ltd.

The Authorized Representative for the Revenue relied on the case law CCE Jalandar vs AG Flats Ltd [2012(277)ELT.96] to argue that duty liability was applicable on the by-product emerging during the manufacturing process, as per the amended Section 2(f) of the Central Excise Act 1944. The penalty was deemed justified by the Authorized Representative.

Upon hearing both sides and examining the case records, it was noted that the appellant did not contest the duty chargeability on Spent Earth. Referring to the judgment of the Hon'ble Apex Court in the case of CCE, Chandigarh I vs Markfed Vanaspati and Allied Industries Ltd, it was established that the issue of duty liability on Spent Earth was settled. The appellant's bonafide belief that no duty liability was attracted, even after the amendment of Section 2(f) of the Central Excise Act 1944, was considered. The judgment in CCE Jalandar I vs AG Flats Ltd (2012) clarified the duty chargeability on the by-product. The appellant's lack of malafide intention to evade duty payment during the relevant period was acknowledged.

Consequently, the penalty imposed under Rule 25 of the Central Excise Act 2002 read with Section 11AC of the Central Excise Act 1944 was deemed unsustainable and was set aside. The appeal filed by the appellant was allowed, specifically to the extent of overturning the penalty imposed.

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