Compounded levy default and breach of sealed control can justify penalty, confiscation, and reduced redemption fine on facts.

Under Rule 96ZQ, delayed payment of duty by an independent processor in the compounded levy scheme was treated as attracting penalty linked to the monthly duty liability, so the request to confine penalty to a nominal amount was rejected, though the quantum was reduced. Admitted breach of departmental seals, removal of the seal, and unauthorised manufacture were treated as sufficient to justify confiscation of the seized goods and associated penal consequences. The redemption fine and personal penalties were moderated on the facts, while liability of both the company and the director was sustained.

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Issues: (i) Whether, under Rule 96ZQ(5)(ii) of the Central Excise Rules, the penalty for delayed payment of duty by an independent processor working under the compounded levy scheme could be confined to Rs. 5,000; (ii) whether the seized goods were liable to confiscation and, if so, what redemption fine and personal penalties were warranted.

Issue (i): Whether, under Rule 96ZQ(5)(ii) of the Central Excise Rules, the penalty for delayed payment of duty by an independent processor working under the compounded levy scheme could be confined to Rs. 5,000.

Analysis: The scheme required 50% of the monthly duty to be paid by the 15th of the month and the balance by the end of the month. The penal provision was treated as linked to that payment structure, and the expression relating to duty outstanding was read in the context of the monthly liability. Since the assessee had not paid the required amount by the 15th, but cleared it only at the end of the month, the provision was held to justify penalty beyond the nominal minimum. The admitted breaking of departmental seals and the finding of habitual default reinforced the need for penal action.

Conclusion: The plea for restriction of penalty to Rs. 5,000 was rejected; penalty was upheld in principle, though reduced in quantum.

Issue (ii): Whether the seized goods were liable to confiscation and, if so, what redemption fine and personal penalties were warranted.

Analysis: The admitted use of sealed stenter machines, removal of the departmental seal, and unauthorised manufacture showed deliberate breach of the control mechanism under the compounded levy regime. On those facts, confiscation of the goods was justified. However, the quantum of redemption fine and penalties was moderated in view of the circumstances, while maintaining liability both for the company and the director under the penal provision invoked against him.

Conclusion: Confiscation was upheld, but the redemption fine and penalties were reduced.

Final Conclusion: The appeal succeeded only to the extent of reduction in the redemption fine and penalties, while the findings on confiscation and liability to penal consequences were sustained.

Ratio Decidendi: Under Rule 96ZQ, delayed payment of duty by an independent processor under the compounded levy scheme attracts penalty linked to the monthly duty liability, and admitted breach of sealed departmental control can justify confiscation and penal consequences, subject to moderation of quantum on the facts.

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