Penalty under Central Excise Rules may survive pre-SCN duty payment, but quantum depends on facts and conduct.

Penalty under Rule 173Q(1)(a) of the Central Excise Rules may still be attracted even where duty and interest are paid before issue of the show cause notice, because such payment does not automatically exclude liability in every case. The document stresses that the nature of the violation, together with the assessee's facts and conduct, must be examined to decide whether penalty is sustainable and to what extent. On the stated facts, the penalty was upheld in principle for erroneous clearance of duty-paid goods after shifting from the Section 3A regime, but the quantum was reduced as excessive.

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Issues: Whether penalty under Rule 173Q(1)(a) of the Central Excise Rules was justified, and if so, whether the amount imposed was excessive.

Analysis: There was no dispute regarding duty liability and interest. The question was confined to penalty for erroneous clearance of duty-paid goods after switching over from the Section 3A regime. The decision notes that payment of duty and interest before issue of show cause notice does not, by itself, rule out penalty in every case, because liability under Rule 173Q can be mandatory depending on the nature of the violation. At the same time, the facts and conduct in each case must be examined to determine whether the penalty should be sustained and in what amount.

Conclusion: Penalty was upheld in principle, but the amount of Rs. 1 lakh was found excessive and was reduced to Rs. 5,000.

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