Pre-notice payment of duty and interest bars penalty where Section 11A(2B) applies and notice is unnecessary.

Penalty under Rule 25 of the Central Excise Rules, 1944 was held unsustainable where the assessee paid the duty and interest before issuance of the show cause notice and informed the department. The text notes that, once the liability was discharged and communicated prior to notice, Section 11A(2B) of the Central Excise Act, 1944 applied and a show cause notice was not required for further proceedings. In the absence of a surviving statutory basis for action, the penalty provision could not be invoked and was set aside.

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Issues: Whether penalty under Rule 25 of the Central Excise Rules, 1944 could be sustained when the assessee had paid the entire duty and interest before issuance of the show cause notice and had intimated the department, attracting Section 11A(2B) of the Central Excise Act, 1944.

Analysis: The duty demand and interest were paid after the department pointed out the alleged ineligibility for exemption, and this payment was made before the show cause notice was issued. The fact of such payment was also communicated to the department. In these circumstances, Section 11A(2B) applied, under which issuance of a show cause notice was not required once the duty and interest had been discharged before notice. As the statutory basis for further proceedings was absent, the penalty provision could not be invoked.

Conclusion: The penalty was not legally sustainable and was set aside.

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