Mandatory penalty under Central Excise law survives pre-notice duty payment where statutory conditions are met.

Penalty under Section 11AC of the Central Excise Act remained mandatory where the statutory conditions were satisfied, and the authority had no discretion to dilute it beyond the limited statutory relaxation. Prior payment of duty before issuance of the show cause notice did not, by itself, remove the liability to penalty or extinguish interest where the statutory liability otherwise survived. The appellate view setting aside penalty and interest was therefore unsustainable, and the adjudicating authority's penalty and direction for recovery of interest were restored.

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Issues: Whether penalty and interest under Section 11AC and Section 11AB of the Central Excise Act were recoverable despite deposit of the duty before issuance of the show cause notice.

Analysis: The adjudicating authority had imposed penalty under Rule 13 of the Cenvat Credit Rules, 2000 and had also directed recovery of interest. The appellate authority set aside the penalty and interest on the premise that the duty had been deposited before the show cause notice. The governing line of authority, however, treated penalty under Section 11AC as mandatory where the statutory conditions were satisfied, and held that the authority had no discretion to impose a lesser penalty except to the limited extent specifically permitted by the statute. Prior deposit of duty before notice did not, by itself, take the case out of the penal provision or justify deletion of interest where the statutory liability otherwise survived.

Conclusion: The setting aside of penalty and interest was unsustainable. Penalty and interest were recoverable, and the Revenue's appeal succeeded.

Final Conclusion: The order of the appellate authority was reversed and the adjudicating authority's imposition of penalty and direction for recovery of interest were restored.

Ratio Decidendi: Where the statutory conditions for penalty are met, penalty under Section 11AC is mandatory and must be imposed in the prescribed manner, and prior payment of duty before issuance of notice does not by itself nullify the statutory liability.

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