Mandatory excise penalty rule struck down as ultra vires for exceeding delegated power and imposing an arbitrary, inflexible sanction.

Delegated legislation must remain within the bounds of the parent Act, and Rule 96ZO was invalid to the extent it imposed a mandatory penalty equal to the duty payable. The Bombay HC found that Section 37 of the Central Excise Act did not authorise such an inflexible penalty structure, which operated without regard to the length of delay or surrounding circumstances and treated minor and substantial defaults alike. The rule was therefore held ultra vires and arbitrary, with the appeal rejected and the Tribunal's order left undisturbed.

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Issues: Whether Rule 96ZO of the Central Excise Rules, 1994, which provided for a mandatory penalty equivalent to the duty payable, was valid and enforceable in light of the enabling power under Section 37 of the Central Excise Act, 1944.

Analysis: The rule was examined against the scope of the rule-making power under Section 37 of the Central Excise Act, 1944. The controlling principle applied was that delegated legislation cannot travel beyond the parent statute. The mandatory penalty prescribed by Rule 96ZO was considered excessive and inflexible, since it operated irrespective of the length of delay or surrounding circumstances. The rule was found to create arbitrary treatment by equating minor and substantial defaults and to impose an unreasonable restraint on trade. It was also held that the statutory framework did not authorize a penalty structure of that nature.

Conclusion: Rule 96ZO, to the extent it imposed a mandatory penalty equivalent to the duty, was invalid and ultra vires. The challenge to the Tribunal's order therefore failed and the appeal was rejected.

Final Conclusion: The dismissal of the appeal left intact the view that the mandatory penalty provision could not survive judicial scrutiny and that the assessee was not liable to such penalty under the impugned rule.

Ratio Decidendi: Delegated legislation imposing a mandatory penalty must remain within the bounds of the enabling statute and cannot prescribe an inflexible or arbitrary penalty that is not authorised by the parent Act.

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