Penalty under Rule 96ZP(3) set aside where duty demand was under challenge and duty was substantially paid.

Penalty under Rule 96ZP(3) was not warranted because the duty demand stemmed from an annual production capacity determination that was already under challenge and had earlier been remanded, leaving the underlying issue sub judice. The assessee had substantially discharged the duty before adjudication and paid the balance shortly after the order, so no mala fide intention could be attributed to the non-payment. On those facts, the penal consequence was set aside, while the duty demand remained confirmed and interest continued to apply according to law.

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Issues: Whether penalty under Rule 96ZP(3) of the Central Excise Rules, 1944 was sustainable when the duty demand arose from an annual capacity of production determination that was already under challenge and the assessee had substantially paid the duty before and soon after adjudication.

Analysis: The basis of the duty demand was itself the subject matter of an appeal and had been remanded earlier, so the underlying issue was still sub judice. In such circumstances, no mala fide intention could be attributed to the assessee for non-payment of the balance duty, particularly when the major portion had already been paid before adjudication and the balance was paid within a short time after the order. On these facts, invocation of penal consequences was not justified.

Conclusion: The penalty imposed under Rule 96ZP(3) was set aside in favour of the assessee. The duty demand remained confirmed as uncontested, and interest continued to apply according to law.

Ratio Decidendi: Where the foundation of a duty demand is under bona fide judicial challenge and the assessee has substantially discharged the duty, penalty is not warranted in the absence of mala fides.

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