Discretionary excise penalties may be reduced by considering Section 11AC relief and mitigating factors, with liability otherwise upheld.

Rule 25 penalties under the Central Excise Rules were treated as discretionary and operating subject to Section 11AC, so the adjudicating authority could consider the reduced-penalty regime and other mitigating factors such as delay and non-deposit when fixing the amount. On that basis, the penalty on the manufacturing unit was reduced to 50% of the original, and the Director's penalty under Rule 26 was also reduced to 50% after liability was otherwise accepted. The result was limited relief by reduction of penalties, without disturbing the underlying findings on liability.

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Issues: (i) whether the penalty imposed on the manufacturing unit under Rule 25 of the Central Excise Rules should be reduced in view of the relationship between Rule 25 and Section 11AC of the Central Excise Act; (ii) whether the penalty imposed on the Director under Rule 26 of the Central Excise Rules should also be reduced.

Issue (i): whether the penalty imposed on the manufacturing unit under Rule 25 of the Central Excise Rules should be reduced in view of the relationship between Rule 25 and Section 11AC of the Central Excise Act.

Analysis: Rule 25 was treated as operating subject to Section 11AC and was understood as permitting a penalty not exceeding the duty amount, unlike the fixed approach under Section 11AC. Since the benefit of reduced penalty available under the Section 11AC regime would otherwise have been available, that factor was taken into account while considering the penalty imposed under Rule 25. The passage of time and the absence of any penalty deposit were also treated as relevant mitigating considerations.

Conclusion: The penalty on the manufacturing unit was reduced to 50% of the penalty originally imposed, which is in favour of the assessee.

Issue (ii): whether the penalty imposed on the Director under Rule 26 of the Central Excise Rules should also be reduced.

Analysis: The Director had admitted removal of the goods without payment of duty and was therefore held liable to penalty. However, because the penalty on the manufacturing unit was reduced, the same equitable treatment was extended to the Director.

Conclusion: The penalty on the Director was also reduced to 50% of the penalty originally imposed, which is in favour of the appellant.

Final Conclusion: The appeals succeeded only to the extent of reduction of penalties, while the findings on liability and the other aspects of the adjudication were not disturbed.

Ratio Decidendi: Where a penalty provision is discretionary and operates subject to Section 11AC, the authority may take into account the availability of a reduced-penalty regime and other mitigating circumstances to proportionately reduce the penalty imposed.

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