Maximum penalty under Rule 25(1) can be reduced where the facts justify discretion and the statute permits it.

Rule 25(1) of the Central Excise Rules, 2002 was construed as prescribing a maximum penalty, not a minimum one. The expression "not exceeding" was held to create a ceiling on the alternative penalty, leaving discretion to impose a lesser penalty in appropriate cases, subject to Section 11AC of the Central Excise Act and the facts and gravity of the breach. The analysis also applied the principle that where two interpretations are possible, the construction favourable to the assessee should prevail. Earlier contrary views were overruled.

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Issues: Whether the amount specified in Rule 25(1) of the Central Excise Rules, 2002 is the minimum penalty to be imposed, or only the maximum penalty, and whether a lesser penalty can be imposed in the exercise of discretion.

Analysis: Rule 25(1) is subject to Section 11AC of the Central Excise Act, which limits penalty to the duty determined in cases of the specified contraventions. The phrase "not exceeding" in the rule governs the alternative penalty and indicates a ceiling, not a floor. The corresponding provision in the earlier rules was understood in the same manner in the earlier reasoning adopted by the Tribunal. Penalty under the scheme is discretionary and must be fixed with regard to the facts and circumstances, including the nature and gravity of the breach. Where two interpretations are possible, the one favourable to the assessee is to be preferred.

Conclusion: The amount specified in Rule 25(1) of the Central Excise Rules, 2002 is the maximum penalty and not the minimum. A lesser penalty may be imposed in an appropriate case. The contrary views were overruled.

Ratio Decidendi: Where a penal provision uses the expression "not exceeding", the specified amount operates as the maximum limit and does not exclude the authority's discretion to impose a lesser penalty, subject to the governing statute.

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