Mandatory excise penalty and interest survive post-detection payment before notice, though penalty may be reduced.

Where duty is evaded after crossing the exemption threshold and registration is not obtained, payment before the show-cause notice is treated as post-detection compliance rather than voluntary payment. The text states that such payment may mitigate the penalty but does not justify setting aside the mandatory penalty under Section 11AC. It also states that delayed payment attracts interest under Section 11AB. The setting aside of both penalty and interest was therefore unsustainable, with penalty restored in reduced form and interest remaining payable from the due date.

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Issues: Whether the mandatory penalty under Section 11AC and interest under Section 11AB were liable to be set aside where duty had been paid before the show cause notice, and whether the penalty could be reduced instead of being cancelled.

Analysis: The respondents had crossed the exemption limit, continued clearances without payment of duty, and had not obtained registration. Payment of duty before issuance of the show cause notice was not treated as voluntary payment in law, since it was made only after detection by the Department. Such payment could at best be a mitigating circumstance for reduction of penalty, but it could not justify setting aside the penalty in toto. In a case of evasion or non-payment of duty, Section 11AC was held to operate mandatorily, and delayed payment also attracted interest under Section 11AB.

Conclusion: The setting aside of penalty and interest was not sustainable. The penalty under Section 11AC was restored but reduced to Rs. 50,000/-, and interest from the due date remained payable.

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