The court emphasized the need to determine the intent behind non-payment of duty and the applicability of penalty under Section 11AC, irrespective of the deposit of duty prior to the issuance of a show cause notice.

1. The respondent is a manufacturer of polypropylene compounding falling under Chapter heading(39 of the Schedule to the Central Excise Tariff Act, 1985. It was noticed that for the years ending 31-3-1997, 31-3-1998 and 31-3-1999, forged entries were shown in RG-I register. Show cause notice dated 19-6-2001 was issued under Section 11A of the Central Excise Act, 1944 (for short "the Act"), requiring the assessee to show cause why additional duty and penalty be not imposed.

2. After considering the view point of the assessee, the adjudicating authority held that the party had clandestinely removed finished goods without issue of invoice and without payment of duty. Interest and penalty was levied thereon wilfully and intentionally evading payment of duty. The said duty was however, deposited without any protest on 23-5-2001 prior to the show cause notice dated 19-6-2001. The adjudicating authority concluded as under:

I come to the unmistakable conclusion that the differential quantity has been surreptitiously removed without following the prescribed Central Excise procedure and without payment of duty. In view of this I hold that the sum of Rs. 1,12,900/- demanded from the notice by invoking the extended period in terms of first proviso to Section 11A of Central Excise Act 1944 is liable to be demanded under this provision and the sum of Rs. 56,927.28 sought to be recovered towards interest under Section 11AB ibid is liable to be recovered. I also hold that notice is liable to be penalized under Section 11AC, ibid.

3. Thereafter, penalty of Rs. 1,12,900/- under Section 11AC was imposed. On appeal, Commissioner, Central Excise (Appeal) set aside the order of penalty, holding that the assessee had already deposited the duty fixed before issuance of show cause notice and as such, imposition of penalty is not called for. In view of the decision of the Tribunal in CCE Madurai v. Jkon Engg. Ltd. and Ashok Leyland Ltd. v. CCE, Chenni , the revenue preferred an appeal, which was dismissed by the Tribunal.

4. Learned counsel for the revenue submitted that view taken in the impugned order and the decisions relied upon therein, is not legally sustainable. Once there was requisite mens rea, which conferred jurisdiction to levy penalty, mere deposit of the amount of duty and interest by itself did not deprive the authority of jurisdiction to levy penalty, as the said deposit could not be conclusive of their being no intention to evade payment of duty or duty being short levied or for having not paid by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act. Learned counsel for the assessee quoted judgment of the Tribunal and decisions relied upon therein.

5. We have considered rival contentions and perused the records and statutory provisions.

6. Provision of Section 11AC of the Act providing for penalty reads as under:

11AC. Penalty for short-levy or non-levy of duty in certain cases. -Where any duty of excise has not been levied or paid or has been hortlevied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under Sub-section (2) of Section 11-A, shall also be liable to pay a penalty equal to the duty so determined: Provided that where such duty as determined under Sub-section (2) of Section 11A, and the interest payable thereon under Section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section be twenty-five per cent of the duty so determined: Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty