Mandatory central excise penalty applies once section 11-AC conditions are met, despite pre-notice duty payment.

Penalty under section 11-AC of the Central Excise Act is mandatory once the statutory ingredients are satisfied, and authorities have no discretion to reduce or waive it merely because the evaded duty was paid before the show-cause notice. A false or contradictory declaration made to claim depreciation was treated as a misstatement supporting evasion and attracting the penal provision. The penalty consequence is equivalent to the evaded duty, subject only to the statutory option of reduced penalty at 25 per cent if the duty, interest under section 11-AB, and other prescribed conditions are met within time.

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Issues: Whether penalty under section 11-AC of the Central Excise Act, 1944 can be reduced or waived when the duty evaded is paid before issuance of the show-cause notice, and what penalty follows when the statutory conditions are attracted.

Analysis: The substantial question was answered by applying the rule that once the ingredients of section 11-AC are satisfied, the authorities have no discretion to impose a lesser penalty or to exempt penalty. Payment of the evaded duty before issuance of the show-cause notice does not by itself eliminate liability under section 11-AC. The Court further noted that the declaration furnished by the assessee, coupled with the contrary claim of depreciation, amounted to misstatement aimed at evasion, thereby attracting the penal provision. The Court also recorded the statutory consequence that the penalty is equivalent to the evaded duty, with the limited statutory reduction to 25 per cent available only if the duty, interest under section 11-AB, and related requirements are satisfied within the prescribed time.

Conclusion: The penalty under section 11-AC is mandatory once attracted and cannot be reduced or waived merely because the duty was paid before the show-cause notice. The assessee remained liable to penalty equivalent to the evaded duty, subject only to the statutory 25 per cent option on timely compliance.

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