Penalty for delayed duty payment may be reduced where the same provision already imposes enhanced interest with penal effect.

Under Rule 173GG(3) of the Central Excise Rules, 1944, delayed payment of duty attracted enhanced interest with a penal element, and a separate daily penalty. The CESTAT held that the quantum of penalty had to be assessed in light of this dual burden for the same default, and that the lower authorities had failed to consider that context. Applying that principle, the original penalty was not sustained at full level and was reduced.

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Issues: Whether the penalty prescribed under sub-rule (3) of Rule 173GG of the Central Excise Rules, 1944 for delayed payment of duty was mandatory and whether the quantum of penalty required reduction in the facts of the case.

Analysis: The assessee had paid duty belatedly with interest at 30% per annum under sub-rule (3) of Rule 173GG, which already carried a penal element. Over and above this, the same provision contemplated a further penalty of Rs. 500 per day for delay. The relevant consideration was that the delayed-payment mechanism imposed both enhanced interest and penalty for the same default, and the quantum of penalty had to be assessed in that context. The lower authorities had not taken these considerations into account while sustaining the full penalty.

Conclusion: The penalty under sub-rule (3) of Rule 173GG was not to be sustained at the original level and was required to be reduced; the assessee succeeded in part.

Ratio Decidendi: Where a statutory delayed-payment provision itself imposes an enhanced interest component with a penal element, the accompanying penalty may be reduced to avoid an excessive punitive burden for the same default.

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