Mandatory penalty without mens rea under subordinate legislation held arbitrary and ultra vires; Revenue challenge failed.

Rule 96ZP of the Central Excise Rules, 1944 was treated as prescribing a compulsory minimum penalty, but that punitive consequence had to comply with constitutional limits. The Tribunal applied the proportionality test to subordinate legislation and followed binding precedent holding that a mandatory penalty without mens rea was arbitrary and ultra vires to that extent. In the absence of any stay or reversal of that precedent, the declaration of law remained binding. On that basis, the mandatory penalty could not be enforced against the assessee as urged by the Revenue, and the Revenue challenge failed.

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Issues: Whether the mandatory minimum penalty prescribed under Rule 96ZP of the Central Excise Rules, 1944 could be sustained in the absence of mens rea and whether the Revenue appeal was liable to be allowed.

Analysis: Rule 96ZP was held to prescribe a compulsory penalty to the extent indicated in the rule, but the validity of such a punitive consequence had to satisfy constitutional limits. The rule-making power could not authorise an excessive and unreasonable restriction that imposed penalty without any justification related to intent, and the proportionality test applied to subordinate legislation. The binding precedent relied upon had already held that the provision, to the extent of mandating minimum penalty without mens rea, was arbitrary and ultra vires. In the absence of any material showing that the ruling had been stayed or reversed, the Tribunal treated that declaration of law as binding.

Conclusion: The mandatory penalty provision could not be enforced as against the assessee on the basis argued by the Revenue, and the Revenue appeal failed.

Ratio Decidendi: A penal provision in subordinate legislation that mandates minimum punishment without mens rea and fails the proportionality test is arbitrary and ultra vires, and cannot be applied as a blanket penalty mechanism.

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