Penalty under Central Excise rules fails absent proven suppression or intent to evade duty after prior payment and disclosure.

Penalty under the Central Excise Rules is not justified where the assessee had filed classification lists and declarations, paid the disputed duty before the show cause notice, and the record did not establish clandestine removal, deliberate suppression, or wilful contravention with intent to evade duty. The commentary applies the principle that corrective payment and disclosure weaken the basis for penalty under Rule 173Q(1)(a) and Rule 173Q(1)(d) unless the department proves the requisite mens rea or breach on the evidence. On those facts, the penalty was held unsustainable and set aside.

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Issues: Whether the penalty imposed under Rule 173Q of the Central Excise Rules, 1944 was sustainable when the assessee paid the disputed duty before issuance of the show cause notice, the classification list and declaration had been filed, and the record did not establish deliberate suppression or contravention with intent to evade duty.

Analysis: The penalty was examined on the facts that the assessee had disclosed its clearances through classification lists and declarations, paid the duty amount before the notice, and there was no material showing clandestine removal, non-disclosure to the Department during the relevant period, or any proved violation attracting Rule 173Q(1)(a) or Rule 173Q(1)(d). The absence of recorded approval details for the classification list also supported the view that the clearances during the relevant period could not be treated as warranting penalty on the basis adopted by the adjudicating authority. The reasoning relied on the principle that penalty is not justified where the assessee has taken corrective action and the record does not establish deliberate concealment or wilful contravention.

Conclusion: The penalty under Rule 173Q was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The dispute survived only on the question of penalty, and the assessee succeeded on that issue, resulting in allowance of the appeal.

Ratio Decidendi: Penalty under the central excise rules cannot be sustained in the absence of proved suppression or contravention with intent to evade duty, particularly where the assessee has already corrected the default and paid the duty before issuance of the show cause notice.

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