Mens rea requirement for excise penalty led to remand after Tribunal ignored bona fide defence to intent to evade duty.

Penalty under Section 11AC requires a fresh examination of the statutory ingredients, including fraud, collusion, wilful misstatement, suppression of facts, or other contravention with intent to evade duty, because mens rea remains relevant to both liability and quantum. Even where the duty demand is not disputed and duty with interest has been paid before hearing, the assessee's bona fide stand on duty liability or Modvat entitlement must still be considered on the question of intent to evade. The Tribunal erred in upholding the penalty without addressing that defence, so the penalty issue was remanded for fresh decision in accordance with law; the deletion of penalty for the period before 28-9-1996 remained undisturbed.

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Issues: Whether the Tribunal erred in upholding part of the penalty under Section 11AC without examining the assessee's contention that there was no fraud, collusion, wilful misstatement, suppression of facts, or intent to evade duty, and whether the matter required remand for fresh consideration of penalty.

Analysis: Penalty under Section 11AC requires examination of the statutory ingredients, namely fraud, collusion, wilful misstatement, suppression of facts, or contravention of the Act or rules with intent to evade duty. The inquiry necessarily involves the element of mens rea. Even where the duty demand is not disputed, the assessee may still contend that its stand on duty liability or Modvat entitlement was bona fide, and that such bona fides bear on the existence of intent to evade and on the quantum of penalty. The assessee's payment of duty and interest before the appeal hearing did not foreclose such a contention. The Tribunal therefore ought not to have declined consideration of the assessee's challenge to penalty merely because the duty liability itself was not open to dispute before it.

Conclusion: The Tribunal's decision upholding the penalty of Rs. 45,87,732/- was set aside and the matter was remanded for fresh decision on the penalty issue in accordance with law. The setting aside of the penalty relatable to the period prior to 28-9-1996 was left undisturbed.

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