Section 11AC penalty requires fraud or suppression; disclosed practice and later duty payment supported bona fide belief.

Penalty under Section 11AC of the Central Excise Act was held unsustainable where the statutory ingredients of fraud, collusion, suppression of facts or willful misstatement were not established. The assessee had informed the jurisdictional superintendent of its view that quantity discounts were not dutiable, acted on a stated marketing practice, and later paid the differential duty with interest. On these facts, the conduct was treated as a bona fide belief rather than intent to evade duty, so the preconditions for penal action were not met and the penalty portion was set aside.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable in the absence of fraud, collusion, suppression of facts or willful misstatement, where the assessee had disclosed its practice and paid duty with interest later.

Analysis: Section 11AC applies only when the statutory ingredients for penal action are established, namely fraud, collusion, suppression of facts or similar culpable conduct resulting in evasion of duty. The assessee's letter to the jurisdictional superintendent showed that it had disclosed its view that quantity discounts were not dutiable and had acted on a stated marketing practice. The record also showed subsequent payment of the differential duty and interest. On these facts, the assessee's conduct reflected a bona fide belief rather than an intent to defraud revenue, and the essential preconditions for penalty were not made out.

Conclusion: Penalty under Section 11AC was not invocable and the penalty portion of the order was set aside in favour of the assessee.

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