Mandatory penalty under Central Excise law follows suppression and extended-period duty demand, with no discretion to reduce it.

Price escalation received in 1999 created duty liability at that time, and failure to pay the duty or inform the department constituted suppression of material facts. Because the duty demand had already been sustained on the extended period under the proviso to Section 11A(1) of the Central Excise Act, the same statutory conditions also supported penalty under Section 11AC. Once those conditions were met, the penalty was mandatory and the adjudicating or appellate authority had no discretion to reduce it below the confirmed duty demand. The penalty was therefore equal to the duty demand confirmed.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was attracted on the differential duty arising from price escalation received in 1999, and if attracted, whether the penalty could be reduced below the duty demand confirmed.

Analysis: The differential amount on account of price escalation was received in 1999, and the duty became payable at that time. The assessee neither paid the duty nor informed the department about receipt of the price differential, which amounted to suppression of material facts. The duty demand had already been upheld by invoking the extended period under the proviso to Section 11A(1) of the Central Excise Act, 1944, and the same conditions governed attraction of penalty under Section 11AC. Once the statutory conditions were satisfied, the penalty was mandatory and, in view of the governing law, the adjudicating or appellate authority had no discretion to impose a lesser penalty.

Conclusion: Penalty under Section 11AC was rightly attracted and had to be equal to the duty demand confirmed. The appeal on penalty was dismissed.

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