Mandatory excise penalty under Rule 96ZO(3) cannot be reduced on hardship or revenue-loss grounds

Penalty under Rule 96ZO(3) of the erstwhile Central Excise Rules, 1944 was mandatory once default in timely payment triggered the third proviso. The Gujarat High Court noted that the compounded levy scheme and the governing Supreme Court ruling left no discretion to waive or reduce the statutory penalty on grounds of hardship or low revenue loss. Accordingly, the adjudicating authority had no jurisdiction to cut the penalty below the prescribed minimum, and the Tribunal's reduction to Rs. 5,000 was contrary to law.

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Issues: Whether penalty imposed under Rule 96ZO(3) of the erstwhile Central Excise Rules, 1944 could be reduced below the statutory minimum where the rule prescribed a mandatory penalty equal to the duty or Rs. 5,000/-, whichever was greater.

Analysis: The penalty provision under the compounded levy scheme was held to be mandatory. The Court relied on the Supreme Court's pronouncement that Rules 96ZO and 96ZQ did not contain any inbuilt discretion to waive or reduce the statutory penalty. Once default in timely payment attracted the third proviso to Rule 96ZO(3), the authority had no jurisdiction to reduce the penalty on considerations of hardship or the quantum of revenue loss. The Tribunal's reduction of penalty to Rs. 5,000/- was therefore contrary to the governing legal position.

Conclusion: The penalty under Rule 96ZO(3) could not be reduced where the statute prescribed a mandatory penalty.

Ratio Decidendi: Where a fiscal penalty provision is expressed in mandatory terms and excludes discretion, adjudicatory authorities cannot reduce the penalty on equitable considerations.

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