Mandatory penalty for delayed excise duty payment applied on default, regardless of later payment before show cause notice.

Delayed payment of duty under the compounded levy scheme triggered the penalty prescribed by the fourth proviso to Rule 96ZP(3), because liability arose on the default itself when duty was not paid by the 10th day of the month. Payment of duty and interest before issuance of the show cause notice did not erase the statutory breach, and the timing of notice was irrelevant to the penalty consequence. The provision was treated as mandating a fixed penalty equal to the outstanding duty or Rs. 5,000, whichever was greater, so the Tribunal's reduction of the penalty was found inconsistent with the rule.

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Issues: Whether penalty under the fourth proviso to Rule 96ZP(3) of the Central Excise Rules was mandatory for delayed payment of duty even though the duty and interest were paid before issuance of the show cause notice.

Analysis: The duty under the compounded levy arrangement had to be paid by the 10th day of each month, and the proviso to Rule 96ZP(3) prescribed a penalty equal to the outstanding duty or Rs. 5,000, whichever was greater, upon failure to comply with that deadline. The timing of the show cause notice was held to be irrelevant to the statutory consequence, because the liability to penalty arose on the default itself. The reduction of penalty by the Tribunal was also described as more lenient than the rule permitted, since the provision contemplated a fixed penalty and not a discretionary maximum.

Conclusion: The penalty was held to be mandatory on default and the appeal failed.

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