Reduced penalty under Section 11AC upheld where duty on short-found goods was paid before the show cause notice.

Where duty on short-found finished goods was paid in full before issuance of the show cause notice, the proviso to Section 11AC applied and the penalty was confined to 25% of the duty amount. The decision treated prior full payment as bringing the matter within the statutory concession for reduced penalty, and it was consistent with the Delhi HC view relied on by the appellant. The penalty was therefore correctly restricted to 25% of the duty demand.

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Issues: Whether the penalty under Section 11AC was liable to be confined to 25% of the duty amount where the entire duty on the short-found goods had been paid before issuance of the show cause notice.

Analysis: The duty demand related to shortage of finished goods detected during verification, and the duty involved had been paid in full before the show cause notice was issued. On these facts, the case fell within the proviso to Section 11AC, which permits limitation of the penalty to 25% of the duty amount. The view was also consistent with the Delhi High Court decision relied upon in support of the appellant's case.

Conclusion: The penalty under Section 11AC was correctly restricted to 25% of the duty demand.

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