Undervaluation penalty under Section 11AC sustained, but reduced-penalty option and ancillary penalties were moderated.

Differential duty and interest liability was accepted, and undervaluation supported the sustainability of penalty. The statutory benefit of paying 25% of the penalty under Section 11AC was required to be extended where otherwise admissible, with payment within 30 days. Penalties imposed on the job worker and the director were found excessive in the circumstances and were reduced. The overall result was partial relief: the duty and interest demand remained intact, while the penalty structure was modified to reflect the reduced statutory option and moderated ancillary penalties.

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Issues: (i) whether the duty and interest demand with penalty under Section 11AC could be sustained; (ii) whether the penalty imposed on the job worker and the director required reduction.

Issue (i): whether the duty and interest demand with penalty under Section 11AC could be sustained.

Analysis: The liability to pay differential duty and interest was not contested, and the factual matrix supported the finding of undervaluation. The imposition of penalty was therefore sustainable. However, the statutory option to pay reduced penalty of 25% under Section 11AC had not been extended by the lower authorities.

Conclusion: The penalty under Section 11AC was upheld, and the assessee was held entitled to the option of paying 25% of the penalty within 30 days.

Issue (ii): whether the penalty imposed on the job worker and the director required reduction.

Analysis: In the circumstances of the case, the larger penalties on the job worker and the director were considered excessive, warranting moderation.

Conclusion: The penalty on the job worker was reduced from Rs. 1 lakh to Rs. 50,000, and the penalty on the director was reduced from Rs. 2 lakh to Rs. 1 lakh.

Final Conclusion: The common order was sustained on merits with modification of the penalties, resulting in partial relief to the appellants while maintaining the duty and interest liability.

Ratio Decidendi: Where duty liability is accepted and undervaluation is established, penalty may be sustained, but the statutory benefit of reduced penalty under Section 11AC cannot be denied when otherwise admissible; penalties on ancillary noticees may be moderated where the circumstances justify reduction.

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