Bona fide classification dispute defeats penalty where no deliberate evasion is shown and duty is adjusted from deposit.

Where the duty demand arose from a genuine classification dispute, penalty was held unwarranted because the disagreement between the department and the assessee did not show deliberate or intentional evasion. The assessee had already deposited an amount toward the differential duty, and the balance was directed to be adjusted from that deposit, reinforcing the bona fide character of the dispute. Applying the principle that penalty should not be imposed when classification is honestly contested, the penalty was set aside in favour of the assessee.

---

---

Issues: Whether penalty was leviable where the duty demand arose out of a genuine dispute regarding classification of the goods.

Analysis: The duty demand had arisen from disagreement between the department and the assessee on classification. The assessee had already made deposit against the differential duty, and the remaining duty amount was directed to be adjusted from the same deposit. In such circumstances, the dispute was treated as bona fide and not involving any deliberate or intentional evasion of duty. Reliance was placed on the principle that where classification is genuinely disputed, penalty is not warranted.

Conclusion: The penalty was set aside in favour of the assessee.

---