Clandestine removal penalty under Section 11AC may be reduced where duty is paid before notice; redemption fine must be proportionate.

In clandestine removal cases under Section 11AC of the Central Excise Act, 1944, the prescribed penalty may be reduced to a lesser amount where duty is paid before issuance of the show cause notice, following the applicable judicial interpretation. Applying that principle, the penalty was reduced to 25% of the duty amount. The redemption fine on seized goods was also found disproportionate on the facts, as duty had already been paid and the fine exceeded the duty involved, so it was reduced to a lower amount.

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Issues: (i) Whether penalty under Section 11AC of the Central Excise Act, 1944 could be reduced in a case of clandestine removal where duty had been paid before issuance of the show cause notice; (ii) Whether the redemption fine imposed on the seized goods was excessive and liable to be reduced.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act, 1944 could be reduced in a case of clandestine removal where duty had been paid before issuance of the show cause notice.

Analysis: The goods were removed without payment of duty and without accompanying excise documents, and the removal was treated as clandestine. The earlier authorities relied on by the appellant were distinguished because they did not concern clandestine removal. The Tribunal followed the Rajasthan High Court view that the penalty prescribed under Section 11AC operates as the maximum limit and that a lesser penalty may be imposed in appropriate cases. Considering payment of duty before the show cause notice and the applicable precedent, the penalty was reduced to 25% of the duty amount.

Conclusion: The penalty under Section 11AC was reduced and not sustained at the original amount; the issue was decided partly in favour of the assessee.

Issue (ii): Whether the redemption fine imposed on the seized goods was excessive and liable to be reduced.

Analysis: The redemption fine was examined in light of the facts that duty had already been paid before the show cause notice and that the fine exceeded the duty involved. On these facts, the fine was considered disproportionate and was reduced to a lower amount.

Conclusion: The redemption fine was reduced to Rs. 20,000 and the issue was decided partly in favour of the assessee.

Final Conclusion: The order was modified by reducing both the penalty and the redemption fine, while maintaining the finding of clandestine removal and duty liability.

Ratio Decidendi: In a case of clandestine removal attracting Section 11AC, the prescribed penalty may be reduced to a lesser amount in accordance with the applicable judicial interpretation, and redemption fine must be assessed proportionately on the facts of the case.

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