Pre-notice payment of duty and interest limits penalty under Section 11AC to 25% of the duty involved.

Where duty and interest are paid before issuance of the show cause notice, the first proviso to Section 11AC of the Central Excise Act restricts the penalty to 25% of the duty involved. The non-payment of duty on sulphuric acid under parallel invoices was not disputed, but the decisive fact was pre-notice payment of the entire duty with interest. On that basis, the reduced penalty imposed by the appellate authority was held sustainable, and the higher penalty sought by the Revenue was not warranted.

---

---

Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was required to be enhanced to the equivalent of the duty evaded, or whether the reduced penalty imposed by the appellate authority was sustainable when the duty along with interest had been paid before issuance of the show cause notice.

Analysis: The clearance of sulphuric acid without payment of duty under parallel invoices was not in dispute. The decisive factor was that the entire duty along with interest had been paid prior to the show cause notice. In such circumstances, the first proviso to Section 11AC applied, and the penal liability was restricted to 25% of the duty amount. The penalty of Rs. 50,000/- was within that limit.

Conclusion: The reduced penalty was upheld and no interference with the appellate order was warranted.

Final Conclusion: The Revenue's challenge to the penalty failed, and the order enhancing the penalty only to a limited amount was sustained.

Ratio Decidendi: Where duty and interest are paid before issuance of the show cause notice, the first proviso to Section 11AC restricts penalty to 25% of the duty involved.

---