Excise penalty survives prior duty payment where procedural contravention caused short payment, though the quantum may be reduced.

Prior payment of excise duty with interest before issue of notice did not extinguish penalty liability under Rule 173Q where the assessee had contravened the duty-payment procedure by using credit not yet available and causing short payment. Section 11A(2B) was treated as limiting notice for duty already paid on intimation, not as removing independent penal consequences. The absence of intention to evade duty was therefore insufficient to avoid penalty. The penalty was upheld in principle, but the amount was reduced as excessive in the facts and circumstances of the case.

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Issues: (i) whether penalty under Rule 173Q was sustainable when the duty had been paid with interest before issue of the show cause notice and the assessee claimed absence of intention to evade duty; and (ii) whether the quantum of penalty was excessive and required reduction.

Issue (i): whether penalty under Rule 173Q was sustainable when the duty had been paid with interest before issue of the show cause notice and the assessee claimed absence of intention to evade duty

Analysis: The assessee had admittedly contravened the duty payment procedure under Rule 173G(1)(a) and the newly inserted Rule 57AB by utilising credit not yet available for the relevant payment, resulting in short payment of duty. The later deposit of duty with interest before notice did not erase the original default. Section 11A(2B) only limits issuance of notice for duty already paid on intimation and does not extinguish liability to penalty under Rule 173Q, which operates independently. The absence of mala fides was therefore not enough to avoid penal consequences.

Conclusion: Penalty under Rule 173Q was rightly imposable and the challenge to penalty on the ground of prior payment and absence of intention to evade duty failed.

Issue (ii): whether the quantum of penalty was excessive and required reduction

Analysis: Though the penalty was justified, the amount originally imposed was considered disproportionate in the facts and circumstances. The contravention was maintained, but the penal amount called for moderation having regard to the overall circumstances of the case.

Conclusion: The penalty amount was reduced from Rs. 2,00,000 to Rs. 50,000.

Final Conclusion: The finding of contravention and the penal liability were sustained, but the monetary penalty was substantially scaled down, leaving the assessee with partial relief only on quantum.

Ratio Decidendi: Prior payment of excise duty with interest before notice does not wipe out liability to penalty under Rule 173Q for a proven procedural or statutory contravention, even in the absence of mens rea.

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