Mandatory penalty under Section 11AC required fresh determination where confirmed duty was minimal and justification was lacking.

Mandatory penalty under Section 11AC of the Central Excise Act was considered unsustainable on the existing facts where the confirmed duty was minimal and the inadmissible Modvat credit was not disputed. The Tribunal noted that no penalty had been imposed under Rule 57-I and that the material on record did not justify the full penalty initially imposed. The proper course was to remit the matter for fresh hearing and redetermination of penalty in accordance with law, while leaving the duty finding undisturbed.

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Issues: Whether the mandatory penalty imposed under Section 11AC of the Central Excise Act, 1944 could be sustained where the duty confirmed was only Rs. 1,805 and the dispute mainly concerned inadmissible Modvat credit.

Analysis: The amount of duty confirmed was very small compared with the penalty imposed, and the inadmissible credit amount was not contested. The order also recorded that no penalty had been imposed under Rule 57-I of the Central Excise Rules. In these circumstances, the basis for imposing the full mandatory penalty of Rs. 47,483 under Section 11AC was not justified on the material then before the Tribunal. Since the appellants were not contesting the duty and the matter required fresh consideration of penalty, the proper course was to remit the matter for re-determination according to law after hearing the appellants.

Conclusion: The penalty under Section 11AC could not be upheld in its existing form, and the matter was remanded to the adjudicating authority for fresh hearing and re-determination of penalty.

Final Conclusion: The appeal succeeded only to the extent that the penalty order was set aside and the penalty issue was sent back for reconsideration, while the duty finding was left undisturbed.

Ratio Decidendi: A mandatory penalty cannot be sustained in the same quantum when the confirmed duty is minimal and the penalty has not been properly justified on the facts, requiring fresh determination in accordance with law.

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