Section 11AC penalty needs proven suppression and intent to evade duty; scrap duty payment alone cannot justify penalty.

Penalty under Section 11AC of the Central Excise Act requires positive evidence of suppression of facts and intent to evade duty; mere irregularity in treatment of scrap generated at a job worker's premises is insufficient. The material recorded that duty on the scrap had been paid in accordance with the departmental formula and regularly over a long period, while the notice was not wholly categorical and was not directed exclusively against the manufacturer. As mens rea was not established on the record, the penalty was held not sustainable and was set aside.

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Issues: Whether penalty under Section 11AC of the Central Excise Act was sustainable in the absence of proof of suppression of facts and intent to evade duty in relation to scrap generated at the job worker's premises under Rule 57F(4) and Rule 57F(5) of the Central Excise Rules.

Analysis: The duty on the scrap had been paid by the manufacturer in accordance with the departmental formula and had also been regularly paid for a long period. The allegation in the notice was not wholly categorical and was not directed exclusively against the manufacturer alone. Rule 57F(5) required return of waste to the factory unless duty was paid, and the record did not show any positive evidence that the manufacturer had acted with intent to evade duty. Invocation of Section 11AC required proof of mens rea, which was not established on the material on record.

Conclusion: Penalty under Section 11AC was not justified and was set aside in favour of the assessee.

Ratio Decidendi: Penalty under Section 11AC cannot be sustained unless suppression of facts and intent to evade duty are established by positive evidence.

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