Central excise suppression and reduced penalty relief: duty, interest and Section 11AC penalty sustained, but Rule 173Q penalty dropped.

Non-payment of duty on scrap generated at job-worker premises and removal of capital goods without reversal of credit was treated as suppression of facts with intent to evade duty, so the demand of duty, interest and penalty under the Central Excise Act and Rules was sustained. The article notes the application of Sections 11A, 11AB and 11AC on the basis that once evasion with intent is established, interest and penalty follow. It also states that the assessee was not entitled to the reduced 25% penalty benefit under Section 11AC because the statutory requirement of paying duty, interest and reduced penalty within the prescribed time after communication of the adjudication order was not met; payment after remand did not cure the default. The separate Rule 173Q penalty was set aside.

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Issues: Whether the demand of duty, penalty and interest under the Central Excise Act and the Central Excise Rules was sustainable, and whether the assessee was entitled to the benefit of reduced penalty of 25% under Section 11AC.

Analysis: The demand arose from non-payment of duty on scrap generated at job-worker premises and removal of capital goods without reversal of credit. The suppression of facts and deliberate intention to evade duty were found to be established, and the adjudicating authority had already restricted the Section 11AC penalty and Section 11AB interest to the period after 28.09.1996 when Section 11AC came into force. The Court relied on the scheme of Sections 11A, 11AB and 11AC, and on the principle that once evasion with intent is established, penalty and interest follow. On the claim for reduced penalty, the Court held that the amended provisos to Section 11AC require payment of duty, interest and reduced penalty within the stipulated time from communication of the adjudication order, which had not been complied with. Payment made after the High Court's remand order did not satisfy the statutory condition. The penalty under Rule 173Q was, however, treated leniently in view of the other penalties already sustained.

Conclusion: The duty demand, penalty under Section 11AC, and interest under Section 11AB and Rule 57U were upheld, while the assessee was denied the benefit of reduced 25% penalty. The penalty of Rs. 1,00,000 under Rule 173Q was set aside.

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