Prospective penalty amendment under Central Excise law cannot apply to earlier show cause notices; reduced penalty still survives.

The amended proviso to Rule 96ZO(3) imposing a 100% penalty for non-payment of duty was held to operate prospectively from 1 May 1998, so it could not be applied where the show cause notice had been issued earlier for defaults in the preceding period. The assessee was therefore not liable to that enhanced penalty on the basis of the later amendment, but penalty exposure remained under Rule 173Q. On the facts, the delay in payment was not fully excusable, so the penalty linked to the larger unpaid amount was reduced, while duty, interest, and the separate penalty for the smaller delayed payment were maintained.

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Issues: Whether the penalty of 100% under the amended proviso to Rule 96ZO(3) of the Central Excise Rules, 1944 could be sustained for defaults relating to September 1997 to March 1998 when the show cause notice was issued before the amendment came into force, and whether a reduced penalty under Rule 173Q of the Central Excise Rules, 1944 was warranted on the facts.

Analysis: The amended proviso imposing penalty for non-payment of duty by 30 April 1998 was held to operate prospectively from 1 May 1998. Since the show cause notice for the relevant period was issued before that date, the appellants had no opportunity to meet a case based on the amended penal provision. The 100% penalty under that proviso, therefore, could not be insisted upon on the basis of a provision introduced after the notice. At the same time, the appellants were not absolved of penalty altogether, because they remained liable to show cause under Rule 173Q. The delay in paying Rs. 12,500/- was also found unjustified, while the delay in relation to Rs. 1,35,349/- did not justify the full penalty originally imposed.

Conclusion: The 100% penalty under the amended proviso to Rule 96ZO(3) was not sustainable, but penalty was still leviable under Rule 173Q; the penalty relating to Rs. 1,35,349/- was reduced to Rs. 20,000/-, and the rest of the duty, interest, and the separate penalty on Rs. 12,500/- were maintained.

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