Mandatory penalty under Compounded Levy Scheme reduced in light of duty payment and surrounding facts.

Under the Compounded Levy Scheme, the proviso to Rule 96ZP(3) made penalty mandatory even though the duty demand was not contested and had already been paid. Complete waiver was therefore unavailable, but the surrounding facts, including prior payment of duty, were relevant to the quantum of penalty. The penalty was upheld as mandatory, while the amount was reduced to Rs. 5,000.

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Issues: Whether penalty under the proviso to Rule 96ZP(3) of the Central Excise Rules, 1944 was mandatory in the facts of the case, and whether the quantum of penalty called for reduction.

Analysis: The appellants were operating under the Compounded Levy Scheme. The duty demand had not been contested and had already been paid. Even so, the proviso to Rule 96ZP(3) made the levy of penalty mandatory, so the request for complete waiver of penalty could not be accepted. At the same time, the surrounding facts, including prior payment of the duty amount, were relevant to the quantum of penalty.

Conclusion: The penalty was held to be mandatory, but its amount was reduced from the full penalty imposed to Rs. 5,000/-.

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