Pre-notice payment of short-levied duty defeats penalty under section 11AC where no subsisting demand remains.

Pre-notice payment of short-levied central excise duty prevents initiation or continuation of penalty under section 11AC of the Central Excise Act, 1944 because the duty demand stands discharged before the show cause notice and no subsisting short levy remains on that date. The court also noted that such payment undermines the usual foundation for penalty, including fraud, suppression, or misrepresentation. On these facts, penalty was held not leviable and the orders setting it aside were left undisturbed.

---

---

Issues: Whether penalty under section 11AC of the Central Excise Act, 1944 is leviable where the assessee has paid the short-levied duty before issuance of the show cause notice.

Analysis: The duty had been deposited before the show cause notice was issued, and the consistent view of several High Courts was that once the duty demand stood discharged before notice, there remained no subsisting short levy on the date of notice for invoking section 11AC. The Court also noted that such pre-notice payment negates the foundation ordinarily required for penalty, namely fraud, suppression, or misrepresentation.

Conclusion: Penalty under section 11AC was not leviable in the facts of the case, and the assessee succeeded on the issue.

Final Conclusion: The appeals were dismissed and the orders setting aside the penalty were left undisturbed.

Ratio Decidendi: Where the short-levied duty is paid before issuance of the show cause notice, penalty under section 11AC of the Central Excise Act, 1944 cannot be initiated or sustained.

---