Automatic minimum penalty for delayed duty payment is described as ultra vires and unconstitutional for lack of discretion and proportionality.

A delegated penalty rule imposing an automatic minimum penalty equal to the duty for delayed payment, without mens rea or discretion, is said to exceed the statutory rule-making power where the Act confines penalty to contraventions involving intent to evade duty. The text also treats such an inflexible regime as arbitrary and disproportionate because it applies the same heavy consequence to minor bona fide delays and leaves no room to consider reasons for default or other relevant circumstances. On that reasoning, the provisions are described as ultra vires and inconsistent with Articles 14, 19 and 21.

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Issues: (i) Whether the rules providing for mandatory minimum penalty equal to the amount of duty for delay in payment, without any mens rea or discretion, were valid and within the rule-making power under the Act; (ii) whether such mandatory penalty provisions were arbitrary, unreasonable and violative of Articles 14, 19 and 21 of the Constitution of India.

Issue (i): Whether the rules providing for mandatory minimum penalty equal to the amount of duty for delay in payment, without any mens rea or discretion, were valid and within the rule-making power under the Act.

Analysis: The statutory scheme empowered rule-making for penalty only in cases of contravention with intent to evade duty. A subordinate rule could not enlarge that power by dispensing with the statutory requirement and by making penalty automatic for every delay. A provision prescribing penalty without considering the nature of default, extent of delay, reasons for delay, or other relevant circumstances was treated as beyond the intended scope of delegated legislation.

Conclusion: The impugned rules, to the extent they imposed mandatory minimum penalty without discretion and without regard to the circumstances of delay, were held to be beyond the rule-making power and ultra vires the Act.

Issue (ii): Whether such mandatory penalty provisions were arbitrary, unreasonable and violative of Articles 14, 19 and 21 of the Constitution of India.

Analysis: The measure was tested on the touchstone of reasonableness and proportionality. A provision imposing the same heavy penalty for the slightest bona fide delay, while also providing for interest, was found to be excessive and lacking in proportional balance. Equality and liberty protections were held to forbid an automatic and inflexible penalty regime that treated materially different situations alike and imposed an unreasonable restriction.

Conclusion: The mandatory minimum penalty provisions were held to be arbitrary, excessive and unreasonable, and violative of Articles 14, 19 and 21 of the Constitution of India.

Final Conclusion: The assessees succeeded in challenging the mandatory penalty component of Rules 96ZO, 96ZP and 96ZQ, and the revenue's appeals against proportionate penalty relief failed.

Ratio Decidendi: A delegated penalty provision must remain within the statutory grant and, where it imposes a restriction on rights, it must satisfy the test of reasonableness and proportionality; an automatic mandatory penalty without mens rea or discretion for every default is ultra vires and unconstitutional.

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