Penalty as a maximum levy and compensatory interest upheld for delayed duty payment under excise rules.

Rule 96ZQ was construed so that the penalty equal to outstanding duty or Rs. 5,000, whichever was greater, operated as a maximum rather than a mandatory fixed levy; on that reading, the provision was not confiscatory because the assessing authority retained discretion to impose a lesser penalty on the facts. The challenge to interest at 36% per annum for delayed payment of duty also failed, as the levy was treated as compensatory and no legal infirmity or demonstrated unreasonableness was established.

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Issues: (i) Whether Rule 96ZQ of the Central Excise Rules, 1944, insofar as it provided for levy of penalty equal to the amount of duty outstanding or Rs. 5,000, whichever is greater, was ultra vires or confiscatory. (ii) Whether the levy of interest at 36% per annum on delayed payment of duty under Rule 96ZQ could be struck down as unreasonable.

Issue (i): Whether Rule 96ZQ of the Central Excise Rules, 1944, insofar as it provided for levy of penalty equal to the amount of duty outstanding or Rs. 5,000, whichever is greater, was ultra vires or confiscatory.

Analysis: The penalty provision had to be construed in the light of the principle that a statutory penalty stated in the rule is not necessarily a fixed and inflexible levy. The relevant approach was that such a provision may operate only as a ceiling, leaving room for the assessing authority to determine a lesser amount depending on the facts and circumstances. On that construction, the provision would not be confiscatory merely because it prescribed a maximum amount.

Conclusion: The penalty clause was not struck down; it was read as prescribing only the maximum penalty, with discretion available to impose a lesser amount.

Issue (ii): Whether the levy of interest at 36% per annum on delayed payment of duty under Rule 96ZQ could be struck down as unreasonable.

Analysis: The interest liability was treated as compensatory for delayed remittance of duty and was not shown to lack a legal basis. The challenge was not supported by facts establishing that the rate itself was unlawful or unreasonable in the circumstances. The court therefore declined to interfere with that part of the rule.

Conclusion: The challenge to the 36% interest levy was rejected.

Final Conclusion: The rule survived challenge on the interest component, and the penalty component was saved by construing it as a maximum only, with discretion to impose a lesser penalty in appropriate cases.

Ratio Decidendi: A penalty provision expressed as a specified amount may be upheld if construed as a maximum penalty with discretion to impose a lesser amount on the facts of each case; a compensatory interest levy for delayed payment will not be invalidated absent a demonstrated legal infirmity.

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