Mens rea is required for Rule 25 penalty where no intent to evade duty is shown and only a clerical error exists.

Penalty under Rule 25 of the Central Excise Rules was treated as subject to the statutory preconditions in Section 11AC, so it could be sustained only where fraud, suppression, wilful misstatement, collusion, or other contravention with intent to evade duty was shown. On the facts, the stock was physically available, reflected in records, and there was no sustainable finding of clandestine removal or intent to evade duty. A mere clerical error in the return was therefore insufficient, and the penalty was set aside.

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Issues: Whether penalty under Rule 25 of the Central Excise Rules could be sustained in the absence of mens rea or intent to evade duty, having regard to the expression "subject to the provisions of Section 11AC of the Central Excise Act".

Analysis: Rule 25 was treated as subordinate legislation operating subject to Section 11AC of the Central Excise Act. The words "subject to" were read as making the statutory preconditions applicable, namely fraud, suppression, wilful misstatement, collusion, or other contravention with intent to evade duty. On the facts, the stock was physically available, reflected in the records, and the authorities themselves had found no sustainable case of clandestine removal or intention to evade duty. In that setting, the mere clerical error in the return did not justify penalty.

Conclusion: Penalty under Rule 25 was not sustainable without proof of mens rea or intent to evade duty, and the penalty was set aside in favour of the assessee.

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