Proportionality in excise penalty led to reduction where duty was paid, clandestine removal was unproved, and the director's role was unclear.

Penalty under Rule 25 of the Central Excise Rules, 2002 was reduced where the substantive duty liability had already been discharged, there was no independent evidence of clandestine removal beyond stock shortages, and the director's statement was not fully inculpatory. The credit issue relating to the 100% EOU was treated as technical, and the director's role was not firmly established. On these facts, the tribunal held that the penalty called for leniency and reduced it from Rs. 5 lakh to Rs. 1 lakh.

---

---

Issues: Whether the penalty of Rs. 5 lakh imposed on the director under Rule 25 of the Central Excise Rules, 2002 required reduction in the facts and circumstances of the case.

Analysis: The shortage of finished goods and wrongful availment of credit were not treated as purely technical, but the record showed no evidence of clandestine removal apart from the shortages, and the director's statement was not fully inculpatory. The company had already discharged the duty, interest and penalty, and the credit issue relating to 100% EOU was regarded as technical in nature. In these circumstances, the quantum of penalty on the director was held to call for leniency.

Conclusion: The penalty on the director was reduced from Rs. 5 lakh to Rs. 1 lakh.

Ratio Decidendi: Where the substantive duty liability has been discharged, there is no independent evidence of clandestine removal, and the director's role is not fully established, the penalty under Rule 25 of the Central Excise Rules, 2002 may be reduced on grounds of proportionality and leniency.

---