Pre-notice duty payment does not waive penalty under excise rules, while partners cannot be separately penalised after firm-level sanction.

Rule 173Q(1) of the Central Excise Rules, 1944 did not provide an automatic waiver of penalty merely because duty was paid before issuance of show-cause notice. Where the assessee continued to dispute liability, challenged confiscation and duty demand, and did not make a voluntary pre-notice acceptance of the breach, the penalty on the firm was upheld. The Court also applied the principle that, once the partnership firm has been penalised for the same contravention, separate personal penalties on the partners are not warranted. Accordingly, the penalties on the partners were set aside while the penalty on the firm remained undisturbed.

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Issues: (i) whether penalty under Rule 173Q(1) was liable to be waived on the ground that duty had been paid before issuance of show cause notice; (ii) whether separate penalties could be imposed on the partners once penalty had been imposed on the partnership firm.

Issue (i): Whether penalty under Rule 173Q(1) was liable to be waived on the ground that duty had been paid before issuance of show cause notice.

Analysis: Rule 173Q(1) of the Central Excise Rules, 1944, provided for confiscation and penalty in cases of removal of excisable goods in contravention of the rules or non-accountal of goods. Unlike Section 11AC of the Central Excise Act, 1944, it did not contain an express provision granting waiver of penalty merely because duty was deposited before issuance of show cause notice. The relevant consideration was whether the assessee had accepted liability and avoided contest. On the facts, the assessee disputed the demand throughout the proceedings, challenged confiscation and duty before the appellate forums, and did not make a pre-notice payment in the sense of voluntary acceptance of liability.

Conclusion: The plea for waiver of penalty on the ground of pre-show-cause notice payment was rejected and the penalty on the firm was upheld.

Issue (ii): Whether separate penalties could be imposed on the partners once penalty had been imposed on the partnership firm.

Analysis: The Court applied its earlier view that, where penalty is imposed on the partnership firm for the relevant contravention, separate personal penalties on the partners are not warranted on the same footing. The firm had already been visited with penalty, and the partners were being punished additionally for the same matter.

Conclusion: The separate penalties imposed on the partners were set aside.

Final Conclusion: The appeal succeeded only to the limited extent of deleting the penalties on the partners, while the remaining order, including the penalty on the firm, was left undisturbed.

Ratio Decidendi: In proceedings under Rule 173Q(1) of the Central Excise Rules, 1944, pre-notice deposit of duty does not by itself warrant waiver of penalty when liability is not accepted and the demand is contested, and separate penalties on partners are not sustainable once the partnership firm has been penalized for the same contravention.

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