Penalty for disputed assessable value issue set aside where omission was not wilful and Section 11AC penalty already applied.

Penalty under Rule 173Q of the Central Excise Rules, 1944 was held unsustainable where inclusion of moulds and tools amortisation cost in assessable value remained a debatable issue during the relevant period, supported by conflicting Tribunal rulings for assessees and settled against the assessee only later by a Larger Bench. The omission was therefore not treated as wilful or mala fide conduct warranting a separate penalty. Because penalty under Section 11AC had already been imposed on the confirmed demand, the additional Rule 173Q penalty was set aside, while the demand, interest and Section 11AC finding were left undisturbed.

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Issues: Whether the penalty imposed under Rule 173Q of the Central Excise Rules, 1944 was sustainable when the issue regarding inclusion of amortisation cost of moulds and tools in the assessable value was debatable and a penalty under Section 11AC of the Central Excise Act, 1944 had already been imposed.

Analysis: During the relevant period, the issue was not free from doubt and there were conflicting Tribunal decisions in favour of assessees. The legal position against the assessee was settled only later by a Larger Bench decision. In that background, the failure to include amortisation cost could not be treated as wilful wrongdoing or malafide conduct so as to justify a penalty under Rule 173Q. Since penalty under Section 11AC had already been imposed on the confirmed demand, a separate penalty under Rule 173Q was not warranted.

Conclusion: The penalty under Rule 173Q was set aside. The penalty under Section 11AC and the confirmed demand, interest and related findings were left undisturbed.

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