Pre-notice payment of duty defeats Section 11AC penalty when no short levy subsists on the notice date.

Where duty is deposited before issuance of the show cause notice, no short levy subsists on that date and proceedings for penalty under Section 11AC of the Central Excise Act cannot be initiated or sustained. The Rajasthan HC followed its earlier ruling on this point and held that the penalty was not sustainable on the facts. In view of that finding, the question whether any otherwise imposable penalty could be reduced below the duty amount did not survive as a substantial question of law.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was leviable, or could be reduced, when the duty amount had already been deposited before issuance of the show cause notice.

Analysis: The appeal turned on the effect of prior payment of duty before the show cause notice. The Court followed its earlier decision that once duty is deposited before issuance of the notice, there is no short levy subsisting on that date and proceedings for penalty under Section 11AC cannot be initiated or sustained. On that view, the further question whether an otherwise imposable penalty could be reduced below the duty amount ceased to be a substantial question of law.

Conclusion: Penalty under Section 11AC was not sustainable in the facts of the case, and the appeal failed.

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