Penalty under Section 11AC upheld for intent to evade, but reduced-penalty benefit preserved where proviso conditions were met.

Penalty under Section 11AC of the Central Excise Act was held sustainable where duty short-payment was determined under Section 11A(2) and the conduct showed continued non-payment despite invoicing and collection, as prior payment before notice did not by itself extinguish liability. The Tribunal applied the settled principle that Section 11AC is attracted in cases involving fraud, suppression, or intent to evade. However, because the assessee had already deposited 25% of the penalty within the period contemplated by the proviso, it was entitled to the statutory reduced-penalty benefit. The penalty was therefore upheld in principle, but reduced to 25% under the proviso.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 was sustainable in the facts of the case and whether the assessee was entitled to the benefit of the proviso reducing the penalty to 25% on payment within the prescribed time.

Analysis: The duty short-paid stood determined under Section 11A(2) and the conduct disclosed continued non-payment despite invoicing and collection, so the plea that prior payment before notice by itself barred penalty was rejected. The Tribunal relied on the settled position that penalty under Section 11AC is attracted where duty is determined under Section 11A(2) in cases involving fraud, suppression, or intent to evade, and that payment before the show cause notice does not by itself extinguish liability. At the same time, the record showed that the assessee had already deposited 25% of the penalty amount before filing the appeal and within the framework contemplated by the proviso to Section 11AC.

Conclusion: The penalty under Section 11AC was upheld, but the assessee was held entitled to the concessional benefit under the proviso, reducing the penalty to 25% of the duty determined.

Final Conclusion: The appeal succeeded only to the limited extent of securing the statutory reduced-penalty benefit, while the substantive finding of liability to penalty remained undisturbed.

Ratio Decidendi: Where duty is determined under Section 11A(2) in a case involving intent to evade, penalty under Section 11AC follows, but the assessee may still claim the statutory reduced-penalty benefit if the conditions of the proviso are satisfied within time.

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