Mandatory penalty liability with discretionary quantum under Rule 173Q and Section 11AC, leading to reduced penalty on facts.

Penalty under Rule 173Q and Section 11AC was treated as mandatory once the statutory conditions were satisfied, and prior payment of duty and interest before the show cause notice did not remove penal liability. However, the adjudicating authority had discretion to calibrate the quantum with reference to the gravity of the offence and the extent of evasion. On those facts, the penalty was upheld in principle but reduced, giving the assessee partial relief on amount only.

---

---

Issues: Whether penalty under Rule 173Q and Section 11AC was mandatory in principle, and whether the quantum imposed required reduction in the facts of the case.

Analysis: The governing principle applied was that liability to penalty under Rule 173Q and Section 11AC is mandatory once the statutory conditions are met, but the adjudicating authority retains discretion as to the amount. The prior payment of duty and interest before the show cause notice did not extinguish the penal liability. At the same time, the quantum had to be calibrated with the gravity of the offence and the extent of evasion, and the facts justified interference with the amount originally imposed.

Conclusion: Penalty was exigible, but the full quantum was reduced and substituted with a lesser penalty of Rs. 10 lakhs under Rule 173Q and Rs. 10 lakhs under Section 11AC, which was in favour of the assessee to that extent.

Final Conclusion: The appeal succeeded only to the limited extent of reduction of penalty, while the liability to penalty itself was maintained.

Ratio Decidendi: Under Rule 173Q and Section 11AC, penalty liability is mandatory once attracted, but the amount of penalty is discretionary and must be proportionate to the gravity of the offence and the extent of evasion.

---