Penalty under compounded levy default is not invariably equal to duty; quantum may be reduced or enhanced on circumstances.

For default in timely payment of duty under the compounded levy scheme, penalty under Rule 96ZO(3) was held leviable, but the authority was not bound to impose the full duty amount as penalty in every case. The provision, though couched in mandatory terms, permitted discretion on quantum having regard to the circumstances, including financial difficulty and absence of mala fide intent. On that basis, the reduced penalty was set aside and enhanced to Rs. 50,000, with the order modified accordingly.

---

---

Issues: Whether, on failure to pay duty within the prescribed time under the compounded levy scheme, penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 had to be imposed compulsorily at the full amount of duty not paid, or whether a lesser penalty could be imposed on the facts and circumstances of the case.

Analysis: The liability to pay duty under Section 3A of the Central Excise Act, 1944 was not in dispute, and the respondents had admittedly delayed payment. The question was whether the penalty provision was mandatory in the sense that it left no discretion to the authority. The reasoning accepted that the statutory language made penalty imposable for default, but, following the principle that a penalty clause expressed in severe terms may still permit discretion as to quantum, the facts of the case had to be considered. The respondents' explanation of financial difficulty and the absence of mala fide intention were treated as relevant in determining the appropriate quantum of penalty.

Conclusion: Penalty was leviable, but equal penalty to the amount of duty was not mandatory; the reduced penalty of Rs. 20,000/- was set aside and penalty was enhanced to Rs. 50,000/-, which was held in the circumstances.

Final Conclusion: The appeal succeeded only to the extent of enhancement of penalty, and the order was modified accordingly.

Ratio Decidendi: Where a penal provision for default is couched in mandatory language, the authority may still exercise discretion in fixing the quantum of penalty on consideration of the circumstances, and the maximum or stated penalty need not invariably be imposed in every case.

---