Penalty under Central Excise rules cannot be mechanically imposed after permanent closure where statutory conditions are unmet.

Penalty under Rule 96ZP was examined in a case where the unit had permanently closed after operating only briefly and duty was determined on annual capacity of production under Section 3A. The record showed no material of production beyond the period of actual operation, so the short-paid duty was confined to that period. The Tribunal's view that penalty was not leviable was sustained because penalty provisions such as Section 11AC apply only when the statutory conditions for invocation are satisfied and cannot be imposed or mechanically enhanced in their absence. The appeal was dismissed.

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Issues: Whether penalty under Rule 96ZP of the Central Excise Rules, 1944 could be reduced or interfered with where the assessee had closed the unit permanently and the duty liability was determined on the basis of annual capacity of production under Section 3A of the Central Excise Act, 1944.

Analysis: The duty liability was computed on the basis of annual capacity of production, and the unit had remained in operation only for two months before its closure. The findings recorded that the factory had closed permanently and that there was no material to show production beyond the said period. In such circumstances, the short-paid duty was confined to the period for which the unit actually functioned. The decision also proceeded on the settled principle that penalty provisions like Section 11AC apply only when the statutory conditions for their invocation exist, and that penalty cannot be imposed or mechanically enhanced in the absence of those conditions.

Conclusion: The Tribunal's view that the penalty was not leviable was sustained, and the appeal was dismissed.

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