Mandatory excise penalty survives prior duty payment, while individual liability and confiscation fines depend on proof of specific breach.

Payment of duty before the show cause notice did not, by itself, prevent imposition of mandatory penalty under Section 11AC where duty removal was admitted; the penalty was therefore restored, though reduced. Penalty under Rule 173Q was also reduced because prior duty payment and the admitted lapse justified a lower quantum. Penalty under Rule 209A against the Director was not sustainable absent evidence of active involvement in the unauthorised removal of goods, so relief to the Director was maintained. Redemption fine for duty-paid goods found in the factory was upheld as unwarranted, but the fine for admittedly unaccounted goods was restored because such goods remained liable to confiscation.

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Issues: (i) Whether penalty under Section 11AC of the Central Excise Act, 1944 could be dropped when duty had been paid before issuance of the show cause notice; (ii) whether penalty under Rule 173Q of the Central Excise Rules, 1944 required reduction; (iii) whether penalty under Rule 209A of the Central Excise Rules, 1944 was sustainable against the Director; (iv) whether redemption fine of Rs. 10,000 for goods found in the factory premises was liable to be sustained; and (v) whether redemption fine of Rs. 5,000 for admittedly unaccounted goods was liable to be set aside.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act, 1944 could be dropped when duty had been paid before issuance of the show cause notice.

Analysis: The duty liability arising from the removal of goods remained undisputed, and the assessee had paid the entire duty before the show cause notice. Even so, the provision invoked was treated as a mandatory penalty provision and the prior payment of duty was held not to create an exception to its operation. The finding recorded by the lower appellate authority that there was no suppression was held to be legally insufficient to justify deletion of the penalty.

Conclusion: The deletion of penalty under Section 11AC was unsustainable and the penalty was restored, though scaled down to Rs. 20,000.

Issue (ii): Whether penalty under Rule 173Q of the Central Excise Rules, 1944 required reduction.

Analysis: The assessee had already discharged the duty before the notice, and that circumstance was held relevant to the quantum of penalty. The amount originally imposed was considered excessive in relation to the duty involved and the admitted lapse.

Conclusion: The penalty under Rule 173Q was reduced from Rs. 1 lakh to Rs. 25,000.

Issue (iii): Whether penalty under Rule 209A of the Central Excise Rules, 1944 was sustainable against the Director.

Analysis: No tangible evidence was found to show the Director's direct involvement in the removal of goods without payment of duty. Mere status as an employee was held insufficient to attract the penal provision in the absence of proof of active participation.

Conclusion: The dropping of penalty under Rule 209A was affirmed in favour of the Director.

Issue (iv): Whether redemption fine of Rs. 10,000 for goods found in the factory premises was liable to be sustained.

Analysis: The goods were treated as duty paid, and the only lapse noticed was failure to send the D-3 intimation. On those facts, confiscation-related monetary consequences were considered unwarranted.

Conclusion: The setting aside of the redemption fine of Rs. 10,000 was upheld.

Issue (v): Whether redemption fine of Rs. 5,000 for admittedly unaccounted goods was liable to be set aside.

Analysis: The goods were admittedly not accounted for in the statutory records, and this fact was not disputed before the adjudicating authority. On that basis, the goods remained liable to confiscation and the corresponding redemption fine could not legally be removed.

Conclusion: The setting aside of the redemption fine of Rs. 5,000 was unsustainable and the fine was restored.

Final Conclusion: The common order was modified by sustaining the mandatory penalty and part of the confiscation-related fine, while maintaining relief on the Director's penalty and the fine linked to duty-paid goods, resulting in partial success for both sides.

Ratio Decidendi: Payment of duty before the show cause notice does not by itself negate a mandatory penalty for admitted evasion, but penalty and confiscation-related consequences must still be assessed on the basis of the specific statutory breach and proof of individual involvement.

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