Section 11AC of Central Excise

This query is : Resolved

Guest

Guest (Querist)

04 February 2009 Hello everyone
My query is regarding section11AC of central excise act.Under this section there is a provision for reduced amount of penalty in first and second proviso if the duty with interest and penalty is deposited within 30 days.This is when assessee does not go for appeal
But when assessee goes for appeal and loses in it then under third proviso he will be liable to pay the duty and interest and penalty on the amount determined under appeal whether increased or decreased.
Query:-Under fourth proviso the exact wordings are "provided also that in that case the benefit of reduced penalty shall be available if the amount of duty so increased and the interest payable thereon and consequential penalty paid within 30 days.
Does this mean that if the amount is determined under appeal and there is fraudcase the amount of penalty shall be reduced only in respect of the increemental amount of duty?i.e supose original duty determined was 50 lakhs and now if duty determined is 70 lakhs then reduction will be available for 20 lakhs only and in in other cases suppose duty determined is 30 lakhs then no reduction will be there.
please explain.

Rajesh Kumar

Rajesh Kumar (Expert)
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05 February 2009 If a persons wants to take benefit of this provision, the amount should be paid within 30 days and then appeal should be filed.

Guest

Guest (Querist)

07 February 2009 Hello everyone
My query is regarding section11AC of central excise act.Under this section there is a provision for reduced amount of penalty in first and second proviso if the duty with interest and penalty is deposited within 30 days.This is when assessee does not go for appeal
But when assessee goes for appeal and loses in it then under third proviso he will be liable to pay the duty and interest and penalty on the amount determined under appeal whether increased or decreased.
Query:-Under fourth proviso the exact wordings are "provided also that in that case the benefit of reduced penalty shall be available if the amount of duty so increased and the interest payable thereon and consequential penalty paid within 30 days.
Does this mean that if the amount is determined under appeal and there is fraudcase the amount of penalty shall be reduced only in respect of the increemental amount of duty?i.e supose original duty determined was 50 lakhs and now if duty determined is 70 lakhs then reduction will be available for 20 lakhs only and in in other cases suppose duty determined is 30 lakhs then no reduction will be there.
please explain.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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23 July 2025 Sure! Let me explain the provisions of Section 11AC of the Central Excise Act related to penalty reduction on payment of duty, interest, and penalty within 30 days, especially in the context of appeals and fraud cases.

Background:
Section 11AC provides for imposition of penalty for duty evasion cases.

There are provisos (conditions) allowing reduction of penalty amount if the duty, interest, and penalty are paid within 30 days.

The reduction is generally available when the assessee deposits the amount without going for appeal (first and second provisos).

What happens when the assessee goes for appeal?
If the assessee appeals and loses, then under the third proviso, the assessee has to pay duty, interest, and penalty as per the amount determined in the appellate order (which could be higher or lower than the original amount).

Now, the fourth proviso says:

"The benefit of reduced penalty shall also be available if the amount of duty so increased and interest thereon and consequential penalty are paid within 30 days."

Your Question:
Suppose original duty determined = ₹50 lakhs

On appeal, duty determined = ₹70 lakhs (i.e., increased by ₹20 lakhs)

Does the penalty reduction apply only on the incremental ₹20 lakhs?

Similarly, if the duty after appeal is reduced to ₹30 lakhs, does the reduction apply or not?

Explanation:
Penalty reduction applies only on the amount of duty which is increased on appeal, not the entire amount.

In your example, since duty was increased from ₹50 lakhs to ₹70 lakhs (an increase of ₹20 lakhs), the reduction in penalty is available only on this increased portion of ₹20 lakhs, provided the duty, interest, and penalty on this incremental amount are paid within 30 days.

If the duty is reduced on appeal (₹30 lakhs vs original ₹50 lakhs), no reduction in penalty is allowed under this proviso because there is no increase in duty.

In fraud cases, the penalty is generally higher, but the proviso does not distinguish fraud vs non-fraud cases for this reduction—it only says "amount of duty so increased."

Summary:
Situation Penalty Reduction Allowed? Basis of Reduction
Duty increased on appeal Yes On the incremental amount only
Duty reduced on appeal No No increase, no reduction
Fraud case with duty increase Yes, penalty reduced on incremental duty if paid timely Same as above
Fraud case with duty decrease No Same as above

Practical takeaway:

If you lose on appeal and the duty is higher, pay the incremental duty + interest + penalty within 30 days to get reduced penalty on that incremental portion.

If duty is lower or the same, you have to pay full penalty (no reduction) as per the appellate order.

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