Section 11AC penalty cannot be reduced to Rule 173Q where suppression and intent to evade duty are established.

Where suppression of facts with intent to evade duty is found and the extended period under the Central Excise Act is invoked, Section 11AC penalty cannot be downgraded to a lesser penalty under Rule 173Q on a discretionary or hypothetical basis. The text notes that the fraud, collusion, wilful misstatement, suppression, and intent-to-evade elements in Section 11AC and the proviso to Section 11A(1) are materially similar, so once those conditions are satisfied, the statutory penalty under Section 11AC applies. The penalty conversion was therefore not justified, and the Section 11AC penalty stands, subject to the reduced 25% penalty if duty and interest are paid within the prescribed period.

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Issues: Whether, after a finding of suppression and invocation of the extended period under the Central Excise Act, the penalty under Section 11AC could be converted into a lesser penalty under Rule 173Q of the Central Excise Rules, 1944.

Analysis: A finding of suppression of facts with intent to evade duty had been recorded in the adjudication and appellate orders, and the conditions attracting the extended period under Section 11A(1) were treated as satisfied. The wording of Section 11AC and the proviso to Section 11A(1) was held to be materially similar in so far as fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty are concerned. Once those conditions were present, the appellate authority had no discretion to substitute Section 11AC penalty with a lesser penalty under Rule 173Q on a hypothetical footing.

Conclusion: The conversion of penalty from Section 11AC to Rule 173Q was not justified, and the penalty under Section 11AC was restored, subject to the statutory reduced penalty of 25% if duty and interest were paid within the prescribed period.

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