Penalty under Central Excise law depends on bona fides; post-notice duty payment does not automatically bar statutory consequence.

Penalty under the Central Excise Act is not automatic merely because duty is paid after a show cause notice; bona fide conduct remains a material consideration. Where the assessee cannot establish bona fides and the record reflects wilful suppression or violation of Modvat/Cenvat requirements, the statutory penalty consequence may still follow. On the facts noted, the assessee's claim for credit or refund after the notice lacked bona fides, so the relief granted below was unsustainable and the Revenue succeeded.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable where duty was paid after the show cause notice and the assessee failed to establish bona fides.

Analysis: The dispute turned on the effect of payment of duty after issuance of the show cause notice and whether the assessee's conduct disclosed bona fide entitlement to credit or refund. The show cause notice alleged wilful suppression and violation of the relevant Modvat/Cenvat provisions. The Tribunal had set aside the penalty by applying an earlier decision, but the later Supreme Court ruling clarified that penalty is not automatic, while also making it clear that bona fide conduct is a necessary consideration. On the facts found, the assessee's claim lacked bona fides, and the benefit of refund or credit after the show cause notice could not be sustained.

Conclusion: The issue was decided in favour of the Revenue, and the penalty and related relief granted to the assessee were not sustainable.

Ratio Decidendi: Penalty under Section 11AC is not automatic on payment of duty after show cause notice, but where the assessee fails to establish bona fide conduct and the case involves wilful suppression, the statutory consequence cannot be denied.

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