Penalty under Section 11AC fails where valuation method was known to Revenue and differential duty was later paid with interest.

Penalty under Section 11AC of the Central Excise Act was held unsustainable where the assessee followed an estimated or provisional cost-based valuation method, disclosed it through regular correspondence, and later paid the differential duty with interest after cost audit. The essential ingredient for penalty, namely suppression of facts with intent to evade duty, was not established on these facts. Although provisional assessment would have been the proper course, the Revenue's prior knowledge of the valuation method and the absence of deliberate evasion meant penal action was not justified, and the penalty was set aside.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable when the assessee adopted a valuation method known to the Revenue and paid the differential duty with interest after cost audit.

Analysis: The assessee had been clearing goods on an estimated/provisional cost basis and later discharged the differential duty with interest after finalisation of cost audit. The method adopted was in the full knowledge of the Revenue, with regular correspondence on the issue. In these circumstances, the essential ingredient for imposition of penalty under Section 11AC, namely suppression with intent to evade duty, was not established. Though provisional assessment would have been the proper course, the facts did not justify penal action.

Conclusion: Penalty under Section 11AC was not imposable and was set aside in favour of the assessee.

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