Penalty under Section 11AC requires intent to evade, while statutory interest on delayed duty payment remains payable.

Penalty under Section 11AC of the Central Excise Act, 1944 cannot be imposed mechanically where the duty demand has already been discharged and the record contains no finding of intent to evade, mala fides, or other culpable conduct; in the absence of such foundational mens rea, the penal provision is not attracted and the penalty is set aside. Statutory interest on delayed duty payment remains separately payable at the applicable rate, even where the duty has been paid and appropriated, if such interest has not already been discharged.

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Issues: (i) Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable on the facts of the case. (ii) Whether interest remained payable on the duty amount already paid and appropriated.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable on the facts of the case.

Analysis: The entire duty demand had already been discharged and appropriated. The order below did not record any finding of intent to evade, mala fides, or mens rea, which are essential for invoking penal consequences under Section 11AC. Penalty cannot be imposed mechanically or as an automatic consequence merely because a demand exists. In the absence of deliberate defiance or contumacious conduct, the penal provision was not attracted.

Conclusion: Penalty under Section 11AC was not sustainable and was set aside.

Issue (ii): Whether interest remained payable on the duty amount already paid and appropriated.

Analysis: Although the duty had been paid and appropriated, statutory interest on delayed payment was not displaced by the setting aside of penalty. The liability to pay interest followed the duty payment delay to the extent interest had not already been discharged.

Conclusion: Interest under Section 11AB remained payable at the applicable rate, if not already paid.

Final Conclusion: The appeal succeeded to the extent of relief from penalty, while the statutory liability to interest was maintained.

Ratio Decidendi: Penalty under Section 11AC of the Central Excise Act, 1944 requires a finding of intent to evade or equivalent culpable conduct, and cannot be imposed in the absence of such foundational mens rea.

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