Mandatory minimum penalty for delayed duty payment held unsustainable where no discretion exists to consider delay circumstances.

A mandatory minimum penalty for delayed payment of fortnightly duty under the compounded levy scheme was treated as unsustainable where it required a fixed penalty equal to the outstanding duty without discretion to consider the extent or circumstances of delay. The legal point applied was that such an inflexible penalty structure had already been held ultra vires as an excessive and unreasonable restriction. On that basis, liability for delayed payment was maintained, but the penalty equal to the entire outstanding duty was set aside to that extent and reduced to Rs. 5,00,000.

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Issues: Whether penalty equal to the outstanding duty under Rule 96ZO(3)(ii) of the Central Excise Rules could be sustained for delayed payment of fortnightly duty liability, or whether the penalty was required to be reduced in the facts of the case.

Analysis: The liability under the compounded levy scheme attracted penalty for delay in payment by the due date, but the rule had to be applied in the light of the constitutional challenge already decided by High Courts. The provision mandating minimum penalty without any discretion and without regard to the extent and circumstances of the delay had been held ultra vires as an excessive and unreasonable restriction. In the present case, the delay did attract penalty, but the amount equal to the entire outstanding duty was not sustainable in view of the infirmity in the mandatory minimum structure of the rule.

Conclusion: The penalty equal to the outstanding duty was set aside to that extent, and the penalty was reduced to Rs. 5,00,000.

Final Conclusion: The assessee succeeded in having the mandatory penalty substantially reduced, while the existence of liability for delayed payment was maintained.

Ratio Decidendi: A rule prescribing mandatory minimum penalty for delayed duty payment, without discretion to consider the circumstances of delay, is liable to be treated as ultra vires and the penalty must be confined to a reasonable amount on the facts of the case.

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