Mandatory penalty under Rule 96ZP(3) must equal outstanding duty when monthly excise duty is not paid by the due date.

Failure to pay monthly duty by the 10th day under the capacity-based assessment scheme attracted mandatory penalty under the fourth proviso to Rule 96ZP(3). The provision was construed as leaving no discretion to impose a lesser amount once the duty remained outstanding, and the interpretation adopted in PEE AAR Steels (P) Ltd. was followed. The penalty therefore had to match the duty due, and a reduced penalty was not legally sustainable.

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Issues: Whether, on failure to pay monthly duty by the 10th day, the penalty under the fourth proviso to sub-rule (3) of Rule 96ZP of the Central Excise Rules, 1944 had to be imposed at a rate equal to the duty outstanding, or whether a lesser penalty could be levied.

Analysis: The duty liability was payable under the capacity based assessment scheme under Section 3A of the Central Excise Act, 1944 read with Rule 96ZP(3) of the Central Excise Rules, 1944. The fourth proviso to Rule 96ZP(3) provides that where the manufacturer fails to pay the whole of the duty payable for any month by the 10th of such month, penalty shall follow in the specified amount. The provision was read as leaving no discretion to reduce the penalty below the amount of duty outstanding, and the interpretation of the Allahabad High Court in PEE AAR Steels (P) Ltd. was followed.

Conclusion: The penalty had to be levied at an amount equal to the duty outstanding, and the lesser penalty was not sustainable.

Ratio Decidendi: Where the statutory proviso prescribes a penalty equal to the duty outstanding upon failure to pay monthly duty by the due date, the authority has no discretion to substitute a lesser penalty.

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