Penalty discretion under compounded levy rules upheld; maximum equal-to-duty penalty was not mandatory and was reduced as excessive.

Rule 96ZP(3) of the Central Excise Rules, 1944 was construed as conferring in-built discretion on the quasi-judicial authority, so penalty equal to duty was not mandatory at the maximum level. The Tribunal held that the quantum of penalty must be commensurate with the offence established and may be fixed below the prescribed ceiling having regard to the facts and circumstances. Applying that principle, it found the originally imposed penalty unduly harsh on the default proved and reduced it to Rs. 10 lakhs.

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Issues: Whether the penalty prescribed under Rule 96ZP(3) of the Central Excise Rules, 1944 was mandatory at the full amount equivalent to duty, or whether a lesser penalty could be imposed having regard to the facts and circumstances.

Analysis: The Tribunal applied the settled principle that the expression prescribing penalty equal to duty under the compounded levy provisions does not exclude discretion. It held that the penal provision contains an in-built discretion enabling the quasi-judicial authority to impose a penalty lower than the maximum, and that the quantum must be commensurate with the offence established. On the facts, the originally imposed penalty of more than Rs. 33 lakhs was considered unduly harsh in relation to the default found.

Conclusion: The penalty was held to be not mandatory at the maximum level and was reduced to Rs. 10 lakhs, while the appeal was otherwise dismissed.

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