Penalty for short duty payment requires mens rea; absent fraud or suppression, penalty was held unwarranted.

Penalty under Rule 173Q of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944 was held not leviable where short payment of duty arose from an incorrect understanding of the relevant notification. The goods were not found to have been clandestinely cleared, and there was no evidence of fraud, collusion, wilful misstatement, suppression of facts, or any contravention with intent to evade duty. In the absence of material establishing mens rea, penal action was unwarranted.

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Issues: Whether penalty was warranted under Rule 173Q of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944 for the short payment of duty.

Analysis: The short payment was found to have arisen from an incorrect understanding of the relevant notification. The goods were not treated as clandestinely cleared, and there was no evidence of fraud, collusion, wilful misstatement, suppression of facts, or any contravention with intent to evade duty. In the absence of material establishing mens rea, the imposition of penalty was held to be unwarranted.

Conclusion: Penalty under Rule 173Q and Section 11AC was not leviable.

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