Clandestine removal admissions sustain penalty, while pre-notice duty payment limits the assessee's penalty to the statutory reduced amount.

Admission of shortage and sale of finished goods in the open market without invoice was treated as sufficient proof of clandestine removal, making penalty under section 11AC of the Central Excise Act, 1944 leviable on the assessee and also warranting penalty on the partner. Where the duty and 25% of the duty as penalty had been deposited before issuance of the show cause notice, the assessee's penalty was confined to the statutory reduced amount of 25% of duty. The partner's penalty was also reduced to Rs. 10,000, and the appellate order was set aside to that extent.

---

---

Issues: (i) whether penalty under section 11AC of the Central Excise Act, 1944 was leviable on the assessee and its partner on account of admitted clandestine removal of goods; (ii) whether the penalty on the assessee was liable to be restricted to 25% of the duty amount in view of payment made before issuance of the show cause notice.

Issue (i): whether penalty under section 11AC of the Central Excise Act, 1944 was leviable on the assessee and its partner on account of admitted clandestine removal of goods.

Analysis: The shortage of finished goods was admitted by the partner, who also stated that the goods had been sold in the open market for cash without invoice. Such admission was treated as sufficient proof of clandestine removal, and the setting aside of penalty by the appellate authority was found unsustainable.

Conclusion: Penalty under section 11AC was held leviable on the assessee, and penalty on the partner was also held warranted.

Issue (ii): whether the penalty on the assessee was liable to be restricted to 25% of the duty amount in view of payment made before issuance of the show cause notice.

Analysis: Since the duty amount and 25% of the duty towards penalty had been deposited before issuance of the show cause notice, the penalty was confined to the statutory reduced amount of 25% of duty.

Conclusion: The penalty on the assessee was restricted to 25% of the duty amount, and the partner's penalty was reduced to Rs. 10,000.

Final Conclusion: The appellate order was set aside, the original adjudication was substantially restored, and the penalties were sustained only to the extent modified by the statutory reduction and the reduced personal penalty.

Ratio Decidendi: An admission of clandestine removal can justify penalty under section 11AC, and where the duty is paid within the stipulated period, the penalty is limited to 25% of the duty.

---