Concessional penalty under Section 11AC applies when duty on shortfound inputs is paid before the show cause notice.

Where duty on shortfound cenvated inputs was paid after the shortage was pointed out but before issuance of the show cause notice, the first proviso to Section 11AC of the Central Excise Act entitled the respondent to the concessional penalty mechanism. In that situation, no interest was payable, and the adjudicating authority was required to extend the option to pay 25% of the duty as penalty within 30 days from the adjudication order. The lower appellate authority applied the correct legal position, and the reduced penalty was upheld.

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Issues: Whether the respondent was entitled to the benefit of the first proviso to Section 11AC of the Central Excise Act, 1944 and to pay reduced penalty of 25% where the duty on shortfound inputs had been paid before issuance of the show cause notice.

Analysis: The duty on the shortfound cenvated input was paid shortly after the shortage was pointed out and before issuance of the show cause notice. In these circumstances, no interest was payable and the adjudicating authority ought to have extended the option contemplated by the first proviso to Section 11AC to pay 25% of the duty as penalty within 30 days from the date of the adjudication order. Since no such option was granted and the lower appellate authority had applied the correct legal position, the cited High Court decisions supported the respondent's entitlement to the concessional penalty.

Conclusion: The respondent was entitled to the benefit of the first proviso to Section 11AC and the reduction of penalty to 25% was upheld.

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