Mandatory excise penalty for suppression upheld, while rule-based penalty was reduced to the statutory maximum.

Penalty under Section 11AC of the Central Excise Act was treated as mandatory where suppression of facts with intent to evade duty was found, and payment of part of the duty before the show-cause notice did not displace that liability. The absence of an express option under the first proviso to Section 11AC did not require remand on the facts. Separately, the penalty imposed under the Central Excise Rules was confined to the only applicable penal provision, Rule 226, whose maximum penalty at the relevant time was Rs. 2,000; the higher penalty was therefore reduced accordingly.

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Issues: (i) Whether penalty under Section 11AC of the Central Excise Act was sustainable when the duty demand under the proviso to Section 11A(1) stood conceded and part of the duty had been paid before the show-cause notice; (ii) Whether the penalty of Rs. 25,000 imposed under the Central Excise Rules could be sustained in law.

Issue (i): Whether penalty under Section 11AC of the Central Excise Act was sustainable when the duty demand under the proviso to Section 11A(1) stood conceded and part of the duty had been paid before the show-cause notice.

Analysis: The duty demand was raised on the basis of suppression of facts with intent to evade payment of duty, and that liability was not seriously pressed. In such a situation, the conditions attracting Section 11AC stood fulfilled. The fact that a part of the duty was paid before issuance of the show-cause notice and the balance later did not alter the statutory liability for penalty. The absence of an express option under the first proviso to Section 11AC did not warrant remand in the facts of the case.

Conclusion: The penalty under Section 11AC was upheld and the challenge on that count failed.

Issue (ii): Whether the penalty of Rs. 25,000 imposed under the Central Excise Rules could be sustained in law.

Analysis: Among the provisions invoked, Rule 226 of the Central Excise Rules, 1944 was the only penal provision. The maximum penalty under that rule at the relevant time was Rs. 2,000. The other invoked rules did not authorise imposition of penalty. Therefore, the penalty had to be confined to the statutory maximum.

Conclusion: The penalty was reduced from Rs. 25,000 to Rs. 2,000.

Final Conclusion: The duty-related penalty was sustained, but the separate penalty under the Central Excise Rules was reduced to the permissible statutory limit, resulting in only partial relief to the assessee.

Ratio Decidendi: Where the ingredients of Section 11AC are satisfied on a finding of suppression with intent to evade duty, the penalty equal to duty is mandatory and is not displaced by payment of duty before or after issuance of the show-cause notice.

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