Mandatory penalty under compounded levy scheme cannot be reduced by appellate authorities when default is established.

Penalty under the compounded levy scheme was held mandatory for default in payment, because Rule 96ZP(3) of the Central Excise Rules was treated as pari materia with the provisions earlier upheld by the Supreme Court. The rule was understood to leave no discretion with appellate authorities to reduce the penalty once default was established. On that basis, the reduction ordered by the Commissioner (Appeals) and the Tribunal was held unsustainable, and the issue was answered in favour of the Revenue and against the assessee.

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Issues: Whether penalty imposed for default under the compounded levy scheme governed by Rule 96 ZP(3) of the Central Excise Rules could be reduced by the appellate authorities.

Analysis: The assessee had opted for payment of duty under the compounded levy scheme under Section 3A of the Central Excise Act and the duty was fixed accordingly. On default in payment, penalty was imposed under Rule 96 ZP(3). The controlling principle was that the rule is mandatory and, being in pari materia with the provisions earlier considered by the Supreme Court, it does not confer any discretion on appellate authorities to reduce the penalty. The identical nature of the rule and the binding Supreme Court ruling left no scope for a contrary view.

Conclusion: The reduction of penalty by the Commissioner (Appeals) and the Tribunal was unsustainable. The question of law was answered in favour of the Revenue and against the assessee, and the appeal was allowed.

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