Mandatory excise penalty equal to duty was found ultra vires, arbitrary, and unconstitutional under Articles 14 and 19.

Rule 96ZO(3)(ii) of the Central Excise Rules, 1944 was examined for validity in imposing a mandatory penalty equal to the duty amount. The provision was found to exceed the rule-making power under Section 37 of the Central Excise Act, 1944 because it prescribed an inflexible penalty regardless of circumstances. It was also treated as arbitrary, excessive, and contrary to Article 14, while imposing an unreasonable restriction on trade and business under Article 19(1)(g) not protected by Article 19(6). The provision was held invalid to the extent it mandated penalty equal to duty, following the Supreme Court's view in favour of the assessee.

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Issues: Whether the mandatory penalty equal to the amount of duty prescribed under Rule 96ZO(3)(ii) of the Central Excise Rules, 1944 could be reduced and, if not, whether such mandatory penalty was valid in law.

Analysis: The question had already been answered by the Supreme Court in favour of the assessee. The statutory scheme under Section 37 of the Central Excise Act, 1944 showed that the rule-making power did not authorise an inflexible penalty equivalent to duty in all cases. The mandatory levy under Rule 96ZO, especially for even minimal delay and irrespective of circumstances, was held to be arbitrary, excessive, violative of Article 14 and an unreasonable restriction on the right to carry on trade or business under Article 19(1)(g), not saved by Article 19(6). The contrast with the limited penalties contemplated by Section 37(3) and Section 37(4) reinforced that the impugned rule exceeded the statutory authority.

Conclusion: The mandatory penalty provision was held to be invalid to the extent it imposed penalty equal to the amount of duty, and the issue was answered against the Revenue and in favour of the assessee.

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