Reduced penalty under Section 11AC available where duty and interest are paid before show cause notice

Where duty and interest were paid before issue of the show cause notice, the proviso to Section 11AC was held to permit reduced penalty at 25% within the prescribed time. The penalty under Section 11AC remained otherwise sustainable because the clearance of goods on incorrect PLA entries still attracted penal liability, although the facts did not amount to clandestine removal in the strict sense. The legal effect was that the assessee received only limited relief on penalty quantification, while the underlying penalty liability was maintained.

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Issues: Whether the assessee, on payment of the duty and interest before issuance of the show cause notice, was entitled to the option of reduced penalty under the proviso to Section 11AC, while the penalty under Section 11AC remained otherwise sustainable.

Analysis: The dispute related only to penalty. The duty and interest had already been paid before the show cause notice. The clearance of goods was found to be based on incorrect PLA entries, but the facts did not justify treating the matter as one of clandestine removal in the strict sense. In these circumstances, the statutory benefit of the proviso to Section 11AC was held to be available, entitling the assessee to discharge penalty at the concessional rate of 25% within the prescribed time.

Conclusion: The penalty under Section 11AC was upheld, but the assessee was granted the option to pay the reduced penalty as permitted by the proviso to Section 11AC. This was in favour of the assessee to the extent of the concessional penalty relief.

Final Conclusion: The appeal succeeded only on the limited question of penalty reduction, while the substantive penalty liability was maintained.

Ratio Decidendi: Where duty and interest are paid before issuance of the show cause notice, the assessee is entitled to the reduced penalty benefit available under the proviso to Section 11AC, even though penalty under Section 11AC is otherwise attracted.

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