Clandestine removal and pre-show cause duty payment trigger Section 11AC penalty, but personal penalty needs proof of knowledge.

Clandestine removal of excisable goods without invoice and without duty payment attracted penalty under Section 11AC because stock shortage and admissions by the authorised signatory and director established evasion. The director's personal penalty was not sustainable because the record showed no material proving his knowledge of the clandestine removal, so that penalty was set aside. As duty had been paid before the show cause notice, the manufacturer was entitled to the statutory concession limiting the penalty to 25% of the duty determined.

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Issues: (i) Whether penalty under Section 11AC was attracted on clearance of goods without invoice and without payment of duty; (ii) Whether the penalty on the director was sustainable in the absence of material showing knowledge of clandestine removal; (iii) Whether the penalty on the manufacturer was liable to be reduced because the duty had been paid before issuance of the show cause notice.

Issue (i): Whether penalty under Section 11AC was attracted on clearance of goods without invoice and without payment of duty.

Analysis: Shortage was detected on stock verification and the authorised signatory as well as the director admitted removal of goods without issuance of invoice and without payment of duty. These admissions established clandestine removal, making Section 11AC applicable.

Conclusion: Penalty under Section 11AC was held invokable against the manufacturer.

Issue (ii): Whether the penalty on the director was sustainable in the absence of material showing knowledge of clandestine removal.

Analysis: The record did not show that the director had knowledge of the clandestine removal. In the absence of such material, personal penalty was not justified.

Conclusion: The penalty on the director was set aside.

Issue (iii): Whether the penalty on the manufacturer was liable to be reduced because the duty had been paid before issuance of the show cause notice.

Analysis: The duty was deposited before issuance of the show cause notice. The decision therefore attracted the statutory concession limiting penalty to 25% of the duty determined.

Conclusion: The penalty on the manufacturer was reduced to 25% of the duty amount.

Final Conclusion: The manufacturer remained liable to penalty for clandestine removal, but the penalty was restricted to the statutory reduced amount, while the director escaped penalty.

Ratio Decidendi: Where clandestine removal of excisable goods is admitted, penalty under Section 11AC is attracted, but if duty is paid before the show cause notice the penalty is confined to the reduced statutory percentage, and personal penalty requires material showing knowledge or involvement.

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