Mens rea is required for excise penalty where short duty was voluntarily paid before notice and no intent to evade was found.

Penalty under Rule 173(GG) of the Central Excise Rules was held unsustainable where the duty shortfall arose from a clerical error, the differential duty and interest were paid before the show cause notice, and there was no finding of wilful intention to evade duty. The Court held that even a fiscal penalty provision for delayed payment requires a prior finding of wilful default or evasion; in the absence of mens rea, the levy could not stand. The penalty was quashed and the challenge to the single Judge's order failed.

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Issues: Whether penalty under Rule 173(GG) of the Central Excise Rules could be imposed when the duty shortfall had been voluntarily paid with interest before issuance of the show cause notice and there was no finding of wilful intention to evade duty.

Analysis: The short payment arose from a clerical mistake in computing the duty payable under the concessional excise duty facility. The differential duty and interest were paid before the show cause notice. The appellate authority itself found absence of any intention to evade payment of duty, yet sustained the penalty on the view that the rule mandated penalty irrespective of mens rea. The Court held that, even where a fiscal provision speaks of penalty for delayed payment, the levy must be preceded by a finding of wilful default or intention to evade, and the absence of such a finding makes the penalty unsustainable.

Conclusion: The penalty was rightly quashed and the challenge to the single Judge's order failed.

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