Court rules penalty not applicable under Rule 96ZP (3) due to lack of intent, deems rule ultra vires.

The court held that the penalty under Rule 96ZP (3) of the Central Excise Rules was not imposable on the respondent as there was no intent to evade duty and the rule was deemed ultra vires. Despite this, since the respondent did not challenge the Tribunal's order, the imposed penalty could not be overturned. The appeal was dismissed, and the court ruled in favor of the respondent-assessee.

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Issues Involved:
1. Whether the penalty equal to the amount of duty under Rule 96ZP (3) of the Central Excise Rules, 1944 is leviable on the respondent.
2. Whether the omission of Rule 96ZP (3) in 2001 affects the penalty proceedings initiated before its omission.
3. Whether the provisions of Rule 96ZP (3) are ultra vires the Act and the Constitution.

Issue-Wise Detailed Analysis:

1. Penalty Under Rule 96ZP (3):
The primary issue was whether the penalty equal to the amount of duty under Rule 96ZP (3) of the Central Excise Rules, 1944 is mandatory. The appellant argued that the penalty is mandatory as per the Supreme Court decisions in Commissioner of Customs and Excise Vs. Kannapiran Steel Re-Rolling Mills and Commissioner of Central Excise, Mumbai. The respondent contended that since Rule 96ZP (3) was omitted without a saving clause, the penalty could not be imposed. Additionally, they argued that the penalty provisions were declared ultra vires by different High Courts, and no intention to evade duty was established.

The court held that Rule 96ZP (3) must be read harmoniously with Section 37 (4) of the Central Excise Act, which requires an intention to evade payment of duty for penalty imposition. Since there was no allegation or finding of intent to evade duty, and the respondent had paid the duty along with interest before the show cause notice, the penalty was not justified.

2. Omission of Rule 96ZP (3):
The appellant argued that the omission of Rule 96ZP (3) in 2001 did not affect proceedings initiated before its omission, citing Section 38A of the Central Excise Act. The respondent countered that the omission without a saving clause invalidated the penalty order passed in 2003.

The court agreed with the appellant, referencing a Full Bench decision in Simbhauli Sugar Mill Ltd. Vs. Union of India, which held that proceedings initiated under an omitted rule are saved by Section 38A. Thus, the penalty proceedings did not lapse due to the omission of Rule 96ZP (3).

3. Ultra Vires Provisions:
The respondent cited various High Court judgments declaring Rule 96ZP (3) ultra vires, including Bansal Alloys & Metals Pvt. Ltd. Vs. Union of India, Commissioner of Customs and Central Excise, Hyderabad v. Sunder Ispat, and Krishna Processor v. Union of India. These judgments held that the penalty provisions exceeded the rule-making power conferred under Section 37 (3) of the Act.

The court concurred with these judgments, acknowledging that Rule 96ZP (3) prescribing penalties exceeding Rs. 5,000 was beyond the authority of law. Therefore, the penalty provisions were ultra vires the Act and the Constitution.

Conclusion:
The court concluded that the penalty under Rule 96ZP (3) was not imposable on the respondent due to the lack of intent to evade duty and the ultra vires nature of the rule. However, since the respondent did not challenge the Tribunal's order, the penalty as levied by the Tribunal could not be interfered with. The appeal was dismissed, and the question of law was answered in favor of the respondent-assessee.

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