Clandestine removal and unretracted admission sustain excise penalty, while pre-notice duty payment may reduce the statutory amount.

Admission of stock shortage and unretracted statements showing sale of inputs in the open market without invoices or duty supported a finding of clandestine removal, attracting penalty under section 11AC of the Central Excise Act, 1944 read with Rule 13 of the Cenvat Credit Rules, 2002. The Director's knowing involvement also justified penalty under Rule 26 of the Central Excise Rules, 2002. Payment of duty before issuance of the show cause notice did not eliminate penalty exposure, but it supported application of the proviso to section 11AC for a reduced statutory penalty on the company.

---

---

Issues: Whether penalties were leviable on the respondent company and its Director for shortage of inputs admitted to have been sold without invoices and without payment of duty, and whether payment of duty before issuance of show cause notice entitled them to concessional penalty.

Analysis: The shortage of stock was admitted by the Director, whose statement was not retracted, and the goods found short were stated to have been cleared in the open market without invoices and without payment of duty. On these facts, the conduct amounted to clandestine removal and attracted penalty under section 11AC of the Central Excise Act, 1944 read with Rule 13 of the Cenvat Credit Rules, 2002. The Director was also found to have been knowingly involved and therefore liable to penalty under Rule 26 of the Central Excise Rules, 2002. At the same time, the payment of duty before issuance of show cause notice justified consideration of the proviso to section 11AC for reduced penalty.

Conclusion: Penalty on the respondent company was sustainable, but confined to the concessional amount under the proviso to section 11AC. Penalty on the Director under Rule 26 was also upheld.

Final Conclusion: The departmental appeal succeeded to the extent of sustaining penalties, while the company's penalty was restricted to the concessional statutory amount in view of pre-show cause notice payment of duty.

Ratio Decidendi: Admission of clandestine clearance, supported by an unretracted statement, is sufficient to sustain penalty, and prior payment of duty does not wipe out penalty liability though it may justify reduction under the statutory proviso.

---