Penalty under Rule 25 set aside for lack of suppression where ER-1 returns and purchase orders disclosed the facts.

Penalty under Rule 25 of the Central Excise Rules, 2002 was held unsustainable where the assessee filed ER-1 returns, worked under purchase orders stating that no excise duty was payable on fabrication charges, and disclosed the relevant activity to the department. The absence of material showing mala fides, deliberate suppression, or unlawful gain meant penalty could not be justified merely because duty was not paid in time. The penalty was set aside, while the duty demand and interest were left undisturbed because they were not contested.

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Issues: Whether penalty under Rule 25 of the Central Excise Rules, 2002 was sustainable when the assessee had filed ER-1 returns, acted under a purchase order stating that no excise duty was payable on fabrication charges, and there was no material showing mala fides or suppression of facts.

Analysis: The appeal challenged only the penalty. The assessee's activity of converting rails into switches on job work basis was carried out under purchase orders from the Railways, and the purchase order itself indicated that no excise duty was payable on the basic rates of fabrication. The assessee had also been filing periodic ER-1 returns, showing that the department was aware of the relevant facts. In the absence of evidence of deliberate suppression, mala fide intention, or unlawful gain, penalty could not be justified merely because duty was not paid in time.

Conclusion: The penalty was not sustainable and was set aside. The demand and interest were left undisturbed as they were not contested.

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