Mens rea is essential before penalty under Rule 96ZO(3); reduced penalty was upheld as justified.

Penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 cannot be imposed in a rigid mechanical manner without considering mens rea. Relying on prior High Court authority and noting that the Supreme Court had left the vires question open, the Court treated mens rea as an essential factor before levy of penalty under the rule. It therefore accepted the appellate authority's reduction of penalty and upheld the reduced amount as justified on the facts stated.

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Issues: Whether penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 could be imposed mechanically without considering mens rea and whether the penalty reduction made by the appellate authority was justified.

Analysis: The Court noted that the Supreme Court in Dharamendra Textile Processors had left open the question of the vires of Rule 96ZO, and relied on the Punjab and Haryana High Court decision which held that the rule imposing equal penalty without mens rea was excessive, unreasonable, and inconsistent with the enabling provision. On that basis, the Court held that mens rea is an essential element to be considered before imposing penalty under Rule 96ZO(3), and that the appellate authority was justified in reducing the penalty.

Conclusion: The penalty could not be imposed in a rigid mandatory manner without considering mens rea, and the reduced penalty was upheld.

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