Penalty under Section 11AC must consider extenuating circumstances; automatic duty-equivalent penalty was set aside and remanded.

Penalty under Section 11AC of the Central Excise Act, 1944 was not required to be mechanically imposed at an amount equal to the duty in every case; the quantum had to be assessed with reference to extenuating circumstances. Because the authorities had not addressed the legal basis for fixing penalty equal to duty and had not considered whether a lesser penalty was warranted, the penalty portion of the order could not be sustained. The penalty was set aside and the matter remanded for fresh consideration of the quantum of penalty.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 had to be imposed at an amount equal to the duty and whether the matter required remand for reconsideration of the quantum of penalty.

Analysis: The penalty under Section 11AC was held not to be mechanically fixed at the equivalent of duty in every case. The quantum of penalty had to be assessed with reference to extenuating circumstances. Since the authorities had not dealt with the legal basis for imposing penalty equal to duty and had not considered whether a lesser penalty was warranted, the penalty portion of the order could not stand.

Conclusion: The issue was decided in favour of the assessee to the extent that the penalty was set aside and the matter was remanded for fresh consideration of penalty.

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