Mandatory penalty for delayed duty payment under compounded levy may be reduced, but not deleted once default is established.

Under the compounded levy scheme, delayed payment of duty was treated as an undisputed default, and the commentary notes that Rule 96ZO was applied as mandatory in nature. On that basis, total deletion of penalty was considered unsustainable once default was established, although the quantum could still be moderated having regard to the facts, including subsequent payment of duty in full. The practical effect described is that penalty could not be wiped out altogether, but could be reduced instead of being imposed at the full amount.

---

---

Issues: Whether penalty for delayed payment of duty under Rule 96ZO could be set aside in toto, and whether the penalty required to be imposed on default could be reduced having regard to the facts of the case.

Analysis: The respondents were operating under the compounded levy scheme and had defaulted in making payment of duty within time, though the duty was later deposited. Rule 96ZO was treated as mandatory in nature, and once the default in payment was undisputed, the penalty could not be wholly annulled by the appellate authority. At the same time, the Tribunal took note of the fact that the duty had been paid in full and considered the circumstances of the case while determining the quantum of penalty.

Conclusion: The order setting aside the penalties in toto was unsustainable, and penalty was required to be imposed. The penalties were therefore restored in modified form at Rs. 25,000/- each, in favour of Revenue in part.

Final Conclusion: The appellate relief granted to the respondents was set aside to the extent of total deletion of penalty, but the quantum was moderated instead of being imposed in full.

Ratio Decidendi: Where a rule prescribing penalty for default in payment of duty is mandatory, the appellate authority cannot wipe out the penalty altogether once default is established, though the quantum may be adjusted on the facts.

---