Penalty under interim stay on revised capacity was unsustainable, as duty payment at the earlier rate was not a voluntary default.

Penalty under Rule 96ZP was unsustainable where the assessee paid duty at the earlier rate while writ petitions were pending under an interim stay against the provisional revision of annual capacity of production. The payment was not a voluntary default because the High Court had stayed operation of the revised order and the department itself permitted payment at the earlier rate during that stay. The premise that the assessee had deliberately failed to comply with the provisional order was therefore incorrect, and departmental issuance of demand notices during the pendency of the writ petitions also negated any claim of laxity. On that basis, the penalty could not stand, and there was no ground to enhance it to the maximum.

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Issues: Whether penalty under Rule 96ZP of the Central Excise Rules, 1944 was sustainable when the assessee paid duty at the lower rate during the pendency of writ petitions under an interim stay, and whether the Revenue was entitled to enhancement of the penalty.

Analysis: The assessee's payment of duty at the lower rate was not voluntary default, because the High Court had stayed operation of the provisional order revising the annual capacity of production under Rule 5 of the Hot Re-rolling Steel Mill Annual Capacity Determination Rules, 1997, and the department also permitted payment at the earlier rate during the subsistence of that stay. The finding that the assessee had chosen not to comply with the provisional order was therefore incorrect. The record also showed that the department had been issuing demand notices during the pendency of the writ petitions, so the premise of departmental laxity was unsustainable. The penalty imposed on that basis could not stand, and there was no basis to enhance it to the maximum.

Conclusion: The penalty was set aside, the assessee's appeal was allowed, and the Revenue's appeal for enhancement was dismissed.

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