Penalty for delayed duty payment must be proportionate; equal penalty was reduced, while interest on late payment was sustained.

Mandatory equal penalty for delayed duty payment under Rule 96ZQ(5)(ii) was held inapplicable where it operated excessively for even slight delay; the penalty had to be commensurate with the contravention, so the equal penalty was reduced to Rs. 5 lakhs. Interest on the delayed duty amount was nonetheless payable because the duty was admittedly discharged beyond the prescribed due dates, and the interest demand was sustained.

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Issues: (i) Whether penalty equal to the duty liability for delayed payment under Rule 96ZQ(5)(ii) of the Central Excise Rules, 1944 could be sustained; (ii) whether interest was payable on the delayed duty amount.

Issue (i): Whether penalty equal to the duty liability for delayed payment under Rule 96ZQ(5)(ii) of the Central Excise Rules, 1944 could be sustained.

Analysis: The delay in payment was admitted, but the rule providing for a penalty equal to the outstanding duty for even slight delay had been held to be excessive and arbitrary by the High Courts. The authority noted that while mandatory equal penalty could not be imposed in every case, a penalty commensurate with the gravity of the contravention could still be imposed.

Conclusion: The equal penalty was not sustained and was reduced to Rs. 5 lakhs.

Issue (ii): Whether interest was payable on the delayed duty amount.

Analysis: Since the duty had admittedly been paid beyond the due dates, interest followed under the provision governing delayed discharge of monthly duty liability.

Conclusion: Interest was upheld.

Final Conclusion: The order was modified by reducing the penalty to Rs. 5 lakhs while sustaining the interest demand.

Ratio Decidendi: A penalty provision prescribing a mandatory penalty equal to the duty for slight delay cannot be applied mechanically where it is excessive, and the penalty must be commensurate with the contravention; interest remains payable on delayed duty.

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