Mandatory penalty under compounded levy scheme upheld where delayed duty payment attracted equal-duty liability and no discretion to reduce it.

Rule 96ZP(3) of the Central Excise Rules, 1944 imposes a mandatory penalty on a manufacturer who fails to pay monthly duty by the due date under the compounded levy scheme, with the penalty set at the outstanding duty or Rs. 5,000, whichever is greater. The provision was treated as materially similar to Rule 96ZO(3) and consistent with the principle that, where the statute prescribes a penalty equal to duty, the authority has no discretion to reduce it. The challenge based on Notification No. 11/2000-C.E. (N.T.) was rejected because the assessee remained bound by the scheme and could not dispute the scope of "duty" for penalty purposes.

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Issues: Whether penalty under Rule 96ZP(3) of the Central Excise Rules, 1944 was sustainable for delayed payment of monthly duty under the compounded levy scheme, and whether the subsequent notification defining "duty" affected the assessee's liability to penalty.

Analysis: The monthly duty liability under the compounded levy scheme was governed by Section 3A of the Central Excise Act, 1944 and the penalty clause in Rule 96ZP(3) expressly provided that a manufacturer failing to pay the duty by the due date shall be liable to pay a penalty equal to the outstanding duty or Rs. 5,000, whichever is greater. The wording of Rule 96ZP(3) was treated as materially similar to Rule 96ZO(3) and consistent with the principle applied to Section 11AC of the Central Excise Act, 1944, namely that where the statute prescribes a penalty equal to duty, the authority has no discretion to impose a lesser penalty. The contention based on Notification No. 11/2000-C.E. (N.T.) dated 01.03.2000 was rejected because the assessee was operating under the scheme and could not deny the meaning or scope of "duty" for the purpose of the penalty provision.

Conclusion: The penalty under Rule 96ZP(3) was rightly sustained and the challenge to the order failed.

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