Mandatory minimum penalty for delayed excise payment held ultra vires where the rule left no discretion or proportionality.

Rule 96ZO(3) of the Central Excise Rules, 1944 was held ultra vires to the extent it imposed a mandatory minimum penalty for delayed payment under the compounded levy scheme without any discretion. The Court reasoned that the rule-making power under the Act was confined to penal consequences linked to evasion, and that a fixed penalty applying mechanically to every delay, regardless of circumstances or proportionality, was excessive, arbitrary, and an unreasonable restriction on fundamental rights. The revenue's appeals therefore failed because no substantial question of law survived against that earlier view.

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Issues: Whether Rule 96ZO(3) of the Central Excise Rules, 1944, providing for mandatory minimum penalty without discretion for delayed payment under the compounded levy scheme, is ultra vires, and whether any substantial question of law arises in the revenue's appeals.

Analysis: The rule-making power under the Act was confined to penal consequences in cases involving intent to evade duty. A provision imposing a fixed minimum penalty for every delay, without regard to the extent or circumstances of default and without any element of discretion, was held to be excessive, arbitrary, and an unreasonable restriction on fundamental rights. The Court accepted the earlier view that such mandatory penalty provisions cannot stand when they operate mechanically and do not permit a proportionate response to the facts of each case.

Conclusion: Rule 96ZO(3), to the extent it mandated minimum penalty without discretion for delay in payment, was held to be ultra vires the Act and the Constitution. The revenue's appeals accordingly failed.

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