Pre-notice duty payment does not defeat penalty where fraud and deliberate evasion are established by evidence.

Payment of duty before issuance of a show cause notice does not bar recovery or penalty where evidence establishes fraud, collusion, wilful suppression, or deliberate evasion. On facts showing clandestine manufacture and removal supported by excess stock, manipulated records, private notebooks, and admissions, the statutory benefit for pre-notice payment was held inapplicable and penalty under the equivalent penal provision followed. Confiscation of seized goods was sustained, but confiscation of plant and machinery was found excessive and the redemption fine on the seized goods was reduced.

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Issues: (i) Whether payment of duty before issue of show cause notice excluded recovery proceedings and penalty where the evasion was found to be deliberate and fraudulent; (ii) whether confiscation of the plant and machinery and the quantum of redemption fine on the seized goods were sustainable.

Issue (i): Whether payment of duty before issue of show cause notice excluded recovery proceedings and penalty where the evasion was found to be deliberate and fraudulent.

Analysis: The evidence of excess stock, manipulated statutory records, private notebooks, and the admissions of the partner, the printing master, the excise clerk, and the merchant manufacturers established a planned scheme of clandestine manufacture and removal. Section 11A(2B) was held to be unavailable because its benefit does not extend to cases involving fraud, collusion, wilful mis-statement, suppression of facts, or contravention with intent to evade duty. Once such ingredients are found, Section 11AC operates and penalty follows notwithstanding payment before the show cause notice. The request for cross-examination was also rejected as the impugned findings were not based on examination-in-chief of departmental officers.

Conclusion: The demand of duty and the penalties were upheld.

Issue (ii): Whether confiscation of the plant and machinery and the quantum of redemption fine on the seized goods were sustainable.

Analysis: While the confiscation of the seized goods was maintained in view of the clandestine clearances, the confiscation of the plant and machinery was considered excessive. The redemption fine on the seized goods was also found liable to reduction.

Conclusion: Confiscation of the plant and machinery was set aside and the redemption fine on the seized goods was reduced.

Final Conclusion: The appeals succeeded only in part, with the substantive duty demand and penal consequences remaining intact, while limited relief was granted against the confiscation of plant and machinery and by reducing the redemption fine.

Ratio Decidendi: Payment of duty before issuance of notice does not bar penalty under Section 11AC where the non-payment or short-payment is attributable to fraud, collusion, wilful suppression, or deliberate evasion.

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