[URGENT]Will penalty be attracted?

Duty would be payable only if your clearance value (including free sample value) had exceeded Rs. 1.5 Crores. I am assuming that your turnover did exceed Rs. 1.5 Crores.

For penalty, there are two types of situations:

1. Where facts were suppressed with intention to evade duty: In cases of this type, penalty under Sec 11AC is imposable. The section says that if the duty, interest and penalty is paid within 30 days of adjudication, the penalty would be only 25% of the duty. Otherwise it would be 100% of the duty. [Remember, adjudication takes place after a Show Cause Notice is issued].

2. Where there was no suppression of facts with intention to evade, penalty cannot be imposed if the duty and interest is paid before issuance of notice. This is as per Sec 11A(2B).

I would suggest, you pay the duty and interest and send a written information that you were under belief that duty was not payable on free samples. Mention that you are filing the information under Sec 11A (2B) of the C. Excise Act, 1944. It may be that they do not issue the notice.

If a notice is issued alleging suppression of facts, you may contest it if you have suitable grounds. If on adjudication the penalty is confirmed, you can still pay 25% of the duty within 30 days of receipt of the adjudication order.