Penalty discretion under Rule 96ZO(3) upheld where delayed duty was paid before notice, allowing reduced penalty.

Under Rule 96ZO(3), the adjudicating authority was not bound to levy penalty equal to the delayed duty payment where the facts justified a lesser sanction. The Tribunal noted that the Supreme Court authority relied on by the Revenue had left the rule's vires open, while the Punjab & Haryana High Court had treated the mandatory minimum penalty as arbitrary and excessive to that extent. On that basis, it held that discretion remained available to reduce the penalty, particularly where the duty had been paid before the show cause notice and the circumstances did not warrant the full amount. The penalty was therefore reduced to Rs. 1,00,000.

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Issues: Whether, in proceedings under Rule 96ZO(3), the adjudicating authority was bound to impose penalty equal to the duty paid after the due date or could reduce the penalty having regard to the circumstances of delayed payment.

Analysis: The Tribunal noted that the Supreme Court decision cited by the Revenue had left the vires of Rule 96ZO(3) open, whereas the Punjab & Haryana High Court had held the rule to be arbitrary and excessive to the extent it mandated a minimum penalty without discretion. On that footing, the Tribunal held that the adjudicating authority was not precluded from imposing a lesser penalty where the duty was ultimately paid before issuance of the show cause notice and the facts did not justify the full penalty.

Conclusion: The penalty was not required to be imposed at the full amount equal to the delayed duty payment and was reduced to Rs. 1,00,000, in favour of the assessee.

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