Reduced penalty option under excise law must be granted when duty and interest are timely paid; co-noticee penalties were moderated.

The statutory reduced-penalty option under Section 11AC had to be extended where duty and interest were upheld and the order permitted payment of 25% penalty within 30 days of communication; the adjudication was interfered with to that extent. Penalties on the co-noticees were not deleted, but they were reduced because the original quantum was considered excessive on the facts. The duty demand and main liability were maintained, while the penalty regime was moderated by recognising the statutory option and reducing co-noticee penalties.

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Issues: (i) Whether the assessee was entitled to the statutory option to pay reduced penalty of 25% under Section 11AC of the Central Excise Act, 1944; (ii) whether the penalties imposed on the co-noticees required reduction.

Issue (i): Whether the assessee was entitled to the statutory option to pay reduced penalty of 25% under Section 11AC of the Central Excise Act, 1944.

Analysis: The demand of duty and interest was upheld, but the adjudicating authority had not extended the option contemplated by the penalty provision. The statutory scheme permits reduced penalty where duty and interest are paid within the prescribed period after communication of the order. The absence of such an option in the adjudication order justified interference to that limited extent.

Conclusion: The assessee was entitled to the option to discharge penalty at 25% of the duty if duty and interest were paid within 30 days of communication of the order.

Issue (ii): Whether the penalties imposed on the co-noticees required reduction.

Analysis: The plea for complete deletion of penalty on the co-noticees was not accepted because the main assessee's penal consequence was sustained. However, considering the overall facts and circumstances, the quantum of penalty imposed on the co-noticees was found excessive and warranted moderation.

Conclusion: The penalties on the co-noticees were reduced.

Final Conclusion: The duty demand and liability on the main assessee were maintained, but the penalty regime was moderated by granting the statutory reduced-penalty option and by reducing the penalties on the co-noticees.

Ratio Decidendi: Where the statute provides for payment of reduced penalty upon timely discharge of duty and interest, the adjudicating authority must extend that option, and penalties on co-noticees may be moderated on the facts even where the main liability is sustained.

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