Mandatory minimum excise penalty without discretion was held ultra vires for being arbitrary and disproportionate

Rule 96ZO of the Central Excise Rules, 1944 was examined for imposing a mandatory minimum penalty without discretion and without regard to the extent or circumstances of delay. The Court treated penalty under the rule-making power as requiring a basis connected to evasion and held that a fixed penalty applicable in every default, including minor or bona fide delay, was unreasonable and arbitrary. It was therefore ultra vires to that extent because it removed meaningful discretion and ignored proportionality. The assessee succeeded, and the reduced penalty was upheld against the revenue's challenge.

---

---

Issues: Whether Rule 96ZO of the Central Excise Rules, 1944, in so far as it provided for a mandatory minimum penalty without discretion and without regard to the extent and circumstances of delay, was ultra vires the parent Act and the Constitution.

Analysis: The power to frame rules under Section 37 of the Central Excise Act, 1944 permitted penalty only where the assessee acted with intent to evade duty. A rule that compelled a fixed minimum penalty in every case of default, irrespective of duration of delay, factual circumstances, or the absence of meaningful discretion, was held to travel beyond the rule-making power. The penalty provision was also found to be unreasonable and arbitrary because it imposed a uniform heavy consequence even for minor or bona fide delay. The Court accepted that penalty must be proportionate and determined on the facts of each case, with discretion remaining with the authorities.

Conclusion: Rule 96ZO was held to be ultra vires to the extent that it mandated a minimum penalty without discretion and without regard to the circumstances of delay. The assessee succeeded, and the revenue's challenge to the reduced penalty failed.

---