Mandatory excise penalty under Section 11AC remains equal to determined duty, and prior payment before notice does not e liability.

Penalty under Section 11AC of the Central Excise Act is mandatory and co-extensive with the duty determined under Section 11A(2) where non-levy or short-levy arises from fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty; it cannot be reduced below that duty, and criminal mens rea is not required. Payment of part or full duty before issue of show cause notice does not extinguish the statutory liability to penalty, because such payment is only adjusted against the final adjudicated demand and does not avoid determination of duty. The Tribunal's interference with the mandatory penalty was therefore not sustained.

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Issues: (i) whether penalty under Section 11AC of the Central Excise Act, 1944 can be less than the duty determined; (ii) whether payment of part or full duty before issue of show cause notice absolves the assessee from penalty under Section 11AC.

Issue (i): whether penalty under Section 11AC of the Central Excise Act, 1944 can be less than the duty determined.

Analysis: Section 11AC provides for penalty equal to the duty determined under Section 11A(2) where non-levy or short-levy occurs by reason of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty. The governing principle is that the penalty is mandatory and co-extensive with the duty so determined, and mens rea in the criminal sense is not required.

Conclusion: The Tribunal was not justified in reducing or setting aside the mandatory penalty; the issue is answered against the assessee and in favour of the Revenue.

Issue (ii): whether payment of part or full duty before issue of show cause notice absolves the assessee from penalty under Section 11AC.

Analysis: Payment made before issue of notice does not eliminate the statutory requirement of determination of duty under Section 11A. Such payment is only to be adjusted against the final adjudicated demand. The liability to penalty under Section 11AC depends on the duty as determined and the presence of the statutorily specified ingredients, and is not avoided merely because duty was paid before notice.

Conclusion: Prior payment of duty before notice does not discharge the assessee from penalty under Section 11AC; the issue is answered against the assessee and in favour of the Revenue.

Final Conclusion: The appeal succeeds, and the order of the Tribunal interfering with the penalty does not stand.

Ratio Decidendi: Penalty under Section 11AC is mandatory and equal to the duty determined under Section 11A(2) where the statutory ingredients are satisfied, and prior payment of duty before show cause notice does not nullify that liability.

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