Mens rea required for central excise penalty; reduced penalty sustained where duty liability remained unsettled.

Penalty under the Central Excise Act was not treated as automatic in these facts because the underlying duty liability was still pending before the Supreme Court, so the ingredients for penal consequences were not established. The Court held that mens rea could not be presumed for levy of penalty and found no basis to interfere with the Tribunal's reduction of penalty to Rs. 20,000. No substantial question of law arose.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was mandatory in the facts of the case and whether the reduced penalty imposed by the Tribunal could be interfered with.

Analysis: The appeal against the duty liability itself was pending before the Supreme Court, and in that situation the ingredients necessary for invoking penal consequences under Section 11AC were not treated as established. On that basis, the Court held that mens rea for levy of penalty could not be presumed and found no infirmity in the Tribunal's order reducing the penalty to Rs. 20,000/-.

Conclusion: The penalty reduction was sustained and no substantial question of law arose.

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