Section 11AC penalty depends on duty determination, while removal without PLA debit may still attract Rule 173Q penalty.

Section 11AC penalty and Section 11AB interest under the Central Excise Act operate only after a notice under Section 11A(1) and a determination of duty under Section 11A(2); without that statutory foundation, the demand cannot be sustained. By contrast, removal of excisable goods without debiting duty in the PLA, in breach of Rule 173G(1), remains a distinct contravention that can attract penalty under Rule 173Q(1)(a), with the quantum assessed on surrounding circumstances.

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Issues: (i) Whether penalty under Section 11AC of the Central Excise Act, 1944 and interest under Section 11AB of the Central Excise Act, 1944 could be sustained without issuance of a notice under Section 11A(1) of the Central Excise Act, 1944 and determination of duty under Section 11A(2) of the Central Excise Act, 1944; (ii) Whether penalty was still exigible under Rule 173Q(1)(a) of the Central Excise Rules, 1944 for removal of excisable goods in contravention of Rule 173G(1) of the Central Excise Rules, 1944.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act, 1944 and interest under Section 11AB of the Central Excise Act, 1944 could be sustained without issuance of a notice under Section 11A(1) of the Central Excise Act, 1944 and determination of duty under Section 11A(2) of the Central Excise Act, 1944

Analysis: Section 11AC was treated as operating only where duty had not been levied or paid, or had been short-levied or short-paid, and the person was liable to pay the duty as determined under Section 11A(2). The Court held that determination under Section 11A(2) presupposes a notice under Section 11A(1), consideration of the reply, and a concluded determination of duty liability. As neither a notice under Section 11A(1) nor a determination under Section 11A(2) had been made, the statutory foundation for invoking Section 11AC was absent. Interest under Section 11AB, being consequential to the same duty determination, could not survive independently.

Conclusion: Penalty under Section 11AC and interest under Section 11AB were not sustainable and were set aside in favour of the assessee.

Issue (ii): Whether penalty was still exigible under Rule 173Q(1)(a) of the Central Excise Rules, 1944 for removal of excisable goods in contravention of Rule 173G(1) of the Central Excise Rules, 1944

Analysis: The Court found that the appellants had removed excisable goods without debiting the duty amount in the PLA as required by Rule 173G(1), thereby committing a clear contravention attracting Rule 173Q(1)(a). While the contravention justified penalty, the surrounding circumstances were taken into account for the quantum of punishment.

Conclusion: Penalty under Rule 173Q(1)(a) was maintainable, but it was reduced to Rs. 1 lakh, partly against the assessee and partly in its favour.

Final Conclusion: The adjudged penalty under Section 11AC and the corresponding interest demand were quashed, but a reduced penalty was sustained for contravention of the removal requirements, resulting in a partial relief to the assessee.

Ratio Decidendi: Penalty under Section 11AC of the Central Excise Act, 1944 is dependent on a prior notice under Section 11A(1) and determination of duty under Section 11A(2), and in the absence of such determination the provision cannot be invoked; a distinct procedural contravention of removal rules may still attract penalty under the relevant penal rule.

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