Voluntary payment defence fails where duty is paid after departmental proceedings begin; penalty was reduced on the facts.

Penalty under Rule 26 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 was found leviable because the duty was paid only after departmental proceedings had begun and prior notices had already put the assessee on notice that duty was payable. The payment was therefore not treated as voluntary so as to bar penalty. Earlier authorities relied on by the appellate authority were held inapplicable on these facts. At the same time, the existing duty deposit and the penalty already sustained against the director justified moderation of the monetary burden, so the penalty on the company was reduced.

---

---

Issues: Whether penalty under Rule 26 of the Central Excise Rules, 2002 read with Section 11AC of the Central Excise Act, 1944 was leviable where duty was deposited before issuance of the show cause notice, and if so, what should be the appropriate quantum of penalty.

Analysis: The duty was not paid voluntarily but only after departmental proceedings had commenced and earlier notices had already put the respondents on notice that duty was payable. The prior proceedings, continued contest by the respondents, and the finding that confiscation and penalty on the director were sustainable showed that the payment could not be treated as voluntary so as to exclude penalty. The earlier authorities relied upon by the Commissioner (Appeals) were found inapplicable on these facts. At the same time, the respondents had already deposited the duty and had also suffered penalty in the hands of the director, which justified moderation of the monetary burden.

Conclusion: Penalty on the respondent-company was held to be leviable, but it was reduced from Rs. 50,000 to Rs. 10,000.

Ratio Decidendi: Payment of duty after departmental detection and prior proceedings is not voluntary payment so as to bar penalty under Rule 26 read with Section 11AC, though the quantum may be reduced on the facts of the case.

---