Section 11AC penalty cannot be reduced arbitrarily by appellate authority without statutory basis

Once penalty is attracted under Section 11AC, the appellate authority cannot arbitrarily reduce the statutory penalty without a lawful basis in the statute. The reduction made by the Commissioner (Appeals) was unsustainable because no finding was recorded that Section 11AC was inapplicable, and no other statutory basis was identified for imposing a reduced penalty. The reduction was therefore held impermissible and was set aside in favour of the Revenue.

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Issues: Whether the penalty imposed under Section 11AC could be reduced by the Commissioner (Appeals) from the equal amount of duty to Rs. 1 lakh.

Analysis: The penalty had been proposed in the show cause notice and confirmed in adjudication under Section 11AC. The appellate authority reduced it only on the view that there was no suppression of facts, but did not record a finding that penalty under Section 11AC was inapplicable or identify any other statutory basis for imposing a reduced penalty. In view of the settled law that, where Section 11AC applies, the appellate authority has no power to arbitrarily scale down the statutory penalty, the reduction was unsustainable.

Conclusion: The reduction of penalty by the Commissioner (Appeals) was held to be impermissible and was set aside in favour of the Revenue.

Ratio Decidendi: Once penalty is attracted under Section 11AC, it cannot be reduced by the appellate authority without a lawful basis in the statute.

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