Appeals allowed on condition: pay duty and interest within 30 days and reduced penalty fixed at 25% of duty

CESTAT allowed appeals subject to condition: penalty was enhanced to an amount equal to duty confirmed, but appellants were given the option to deposit the entire dues within 30 days. If duty and interest are paid within that period and the reduced penalty (25% of duty) is deposited, the penalty will stand restricted to 25% of the duty. All appeals disposed of on these terms.

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Issues: Whether the quantum of penalty imposed under Section 11AC of the Central Excise Act, 1944 should be enhanced to 100% of the duty confirmed in view of the Supreme Court decision in Dharmendra Textile Processors and how the provisos to Section 11AC affect availability of reduced penalty on deposit within thirty days.

Analysis: The legal framework requires application of Section 11AC which, as interpreted by the Supreme Court in Dharmendra Textile Processors, leaves no discretion to impose less than the statutory penalty when its provisions are invoked. The first and second provisos to Section 11AC provide that payment of duty and interest within thirty days of communication of the order entitles the assessee to have the penalty restricted to 25% of the duty, and the third and fourth provisos extend analogous benefits where appellate enhancement occurs, subject to deposit within thirty days of the appellate order. Prior decisions reducing penalties where proviso-based options were not afforded were held to be contrary to the provisos and required either remand for fresh adjudication with opportunity to pay under the provisos or appellate enhancement with an express thirty-day deposit option.

Conclusion: Penalties under Section 11AC are enhanced to 100% of the duty confirmed in each case (in favour of Revenue). Concurrently, an option is granted to the assessee to deposit the dues along with 25% of the penalty within thirty days of communication of the appellate order, in which event the penalty shall be restricted to 25% of the duty.

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