Section 11D demand fails where reversed Modvat credit and Rule 57CC debits show no retention of duty collected.

Section 11D of the Central Excise Act could not be invoked where the assessee manufactured both dutiable and exempted goods, reversed Modvat credit on common inputs on a pro rata basis, or debited the prescribed amount under Rule 57CC, and passed the recovered amount to the Government through the credit account or PLA. Because the amount collected from customers was not retained as duty but was remitted onward, the factual foundation for Section 11D was absent. The consequential penalty also could not survive once the demand itself was unsustainable.

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Issues: Whether the demand under Section 11D of the Central Excise Act and the consequential penalty were sustainable when the appellants had reversed Modvat credit and credited the amount attributable to exempted clearances in terms of Rule 57CC.

Analysis: The appellants manufactured both dutiable and exempted footwear and had taken Modvat credit on common inputs. For exempted clearances, they reversed credit on a pro rata basis or debited the prescribed 8% amount under Rule 57CC. The record showed that the amount recovered from customers was not retained by the appellants but was passed on to the Government through the credit account or PLA. Since Section 11D applies only where an amount collected as duty is retained instead of being paid over, the factual basis for invoking that provision was absent.

Conclusion: The demand under Section 11D was unsustainable and the penalty founded on that demand could not survive.

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