Reduced penalty under Section 11AC requires timely compliance; personal penalty needs proof of active involvement.
Where clandestine removal is established and duty evasion is not disputed, penalty under Section 11AC is equal to the duty evaded, and the 25% reduced penalty under the proviso is available only if duty, interest and penalty are paid within the stipulated time after the order-in-original. Because that option had been expressly granted but not exercised in time, reduction at the appellate stage was rejected and the unit's penalty was upheld. A personal penalty under Rule 26 cannot be sustained without evidence linking the employee to the clandestine clearances; in the absence of such material, the manager's penalty was set aside.
Issues: (i) Whether the assessee was entitled to reduction of penalty to 25% under the proviso to Section 11AC of the Central Excise Act, 1944 despite not availing the option granted in the order-in-original; (ii) Whether the penalty imposed on the manager under Rule 26 of the Central Excise Rules was sustainable in the absence of evidence of his involvement in the clandestine clearances.
Issue (i): Whether the assessee was entitled to reduction of penalty to 25% under the proviso to Section 11AC of the Central Excise Act, 1944 despite not availing the option granted in the order-in-original.
Analysis: The demand of duty on clandestine clearance was not disputed. For evasion involving clandestine manufacture and removal, penalty under Section 11AC is equal to the duty evaded. The proviso permits reduction to 25% only where the assessee pays duty, interest, and 25% penalty within 30 days of the order-in-original. Since that option had already been expressly granted and was not exercised within time, the reduced penalty could not be claimed later at the appellate stage.
Conclusion: The request for reduction of penalty to 25% was rejected and the penalty on the assessee was upheld.
Issue (ii): Whether the penalty imposed on the manager under Rule 26 of the Central Excise Rules was sustainable in the absence of evidence of his involvement in the clandestine clearances.
Analysis: The record did not contain direct evidence showing the manager's participation in the clandestine activity. He was only an employee, and in the absence of material linking him to the removal of goods, the penal consequence could not be sustained. Benefit of doubt was therefore extended to him.
Conclusion: The penalty imposed on the manager was set aside.
Final Conclusion: The duty demand and the full penalty against the manufacturing unit were sustained, while the personal penalty on the manager was quashed.
Ratio Decidendi: Where the proviso to Section 11AC is expressly invoked in the order-in-original but not complied with within the stipulated time, reduced penalty cannot later be claimed in appeal; personal penalty requires evidence of active involvement in the offending conduct.
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