Penalty under Section 11AC requires proof of suppression or intent to evade; without it, the levy cannot stand.

Penalty under Section 11AC of the Central Excise Act, 1944 is sustainable only where the statutory foundations for its invocation are established, namely fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty. On the facts recorded, no legally tenable finding of suppression or intent to evade was made, and the mere payment of duty and interest did not cure the absence of those ingredients. The section, though mandatory once attracted, cannot operate without its preconditions. The penalty was therefore held unjustified and set aside in favour of the assessee.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable when the duty and interest had already been paid and there was no finding of suppression of facts, fraud, collusion or wilful misstatement with intent to evade duty.

Analysis: Section 11AC applies only where the statutory conditions for its invocation are established, namely fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade duty. The records did not disclose any such ingredient, and the lower appellate order did not record a legally tenable finding on suppression or intent to evade. In these circumstances, the case did not satisfy the preconditions for penalty. The authority also relied on the settled interpretation that, while the penalty is mandatory once Section 11AC is attracted, the section cannot be applied in the absence of its foundational conditions.

Conclusion: The penalty under Section 11AC was not justified and was set aside in favour of the assessee.

Ratio Decidendi: Penalty under Section 11AC of the Central Excise Act, 1944 is attracted only when the statutory ingredients of fraud, collusion, wilful misstatement, suppression of facts or intent to evade duty are established; absent such finding, the penalty cannot be imposed.

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