Mandatory Section 11AC penalty cannot be reduced once statutory conditions are met and liability is established.

Penalty under Section 11AC of the Central Excise Act, 1944, once attracted on satisfaction of the statutory conditions, is mandatory and the adjudicating forum has no discretion to reduce it on equitable grounds. The Supreme Court held that, where duty liability had already been upheld and not disputed, the Tribunal could not substitute a lower penalty amount merely because it considered reduction appropriate. The reduction was therefore legally unsustainable, and the binding statutory consequence of penalty had to be applied as prescribed.

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Issues: Whether, after penalty under Section 11AC of the Central Excise Act, 1944 was found leviable, the Tribunal could reduce the quantum of penalty.

Analysis: The appeal concerned reduction of penalty in a case where duty on the intermediate product used for captive consumption had already been upheld and the assessee had not disputed the duty demand. The governing principle applied was that penalty under Section 11AC is mandatory once the statutory conditions for its levy are satisfied, and the adjudicating forum has no discretion to substitute a lower amount on equitable considerations. The Tribunal was required to follow the binding law on mandatory penalty and could not rely on a contrary view to reduce the penalty quantum.

Conclusion: The Tribunal was not justified in reducing the penalty and the reduction was legally unsustainable.

Ratio Decidendi: Where penalty under Section 11AC of the Central Excise Act, 1944 is attracted, its imposition is mandatory and the quantum cannot be reduced in the exercise of discretion once liability to penalty is established.

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