Section 11AC penalty can be limited to 25% when duty is paid before show-cause notice, as provisos apply.

Penalty under Section 11AC of the Central Excise Act can be confined to the reduced amount where the duty liability is discharged before issuance of the show-cause notice. The Gujarat HC held that, on these facts, the assessee was entitled to the benefit of the first and second provisos to Section 11AC because the duty had already been deposited before notice. The Tribunal's decision sustaining penalty at 25% of the duty was therefore approved, and the Revenue's challenge failed.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 could be restricted to 25% of the duty amount when the duty had been paid before issuance of the show-cause notice.

Analysis: The dispute turned on the scope of Section 11AC and its provisos. The main provision attracts penalty where the statutory conditions exist, while the provisos operate to reduce the penalty where the duty is paid within the prescribed framework. On the facts, the duty amount had already been deposited before the show-cause notice. In such a situation, the assessee was held entitled to the benefit of the first and second provisos to Section 11AC, and the Tribunal's view sustaining penalty at 25% of the duty was approved.

Conclusion: The reduced penalty of 25% was upheld and the Revenue's challenge failed.

Ratio Decidendi: Where duty liability is discharged before issuance of the show-cause notice, the assessee is entitled to the benefit of the provisos to Section 11AC and the penalty can be restricted in accordance with those provisos.

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