Discretionary penalty for delayed duty payment upheld where the rule was read to avoid automatic levy and arbitrariness

Rule 96ZQ(5)(ii) was construed as a discretionary penalty provision for delayed duty payment by an independent processor, not as an automatic levy in every default case. The Court distinguished compensatory interest under sub-rule (5)(i) from deterrent penalty under sub-rule (5)(ii), holding that both consequences operate in different fields. The absence of express guidelines did not make the rule unconstitutional because it could be read to avoid arbitrariness. On that construction, the penalty provisions were not struck down as ultra vires, and the penalty orders required reconsideration by the assessing authority.

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Issues: Whether Rule 96ZQ(5)(ii) of the Central Excise Rules, 1944, imposing penalty for delayed payment of duty by an independent processor, was unconstitutional or had to be construed as conferring discretion on the assessing authority in the matter of penalty.

Analysis: The rule provided for two distinct consequences on default: interest under sub-rule (5)(i) and penalty under sub-rule (5)(ii). The Court held that compensatory recovery by way of interest and deterrent penalty can operate in different fields. Relying on the approach adopted by the Supreme Court in analogous cases, the Court read the penalty provision as not creating an inflexible, automatic levy in every case, but as a provision to be applied with discretion depending on the facts and circumstances. The absence of express guidelines in the text did not render the rule unconstitutional when the provision could be construed in a manner that avoids arbitrariness.

Conclusion: Rule 96ZQ(5)(ii) was not struck down as ultra vires, but the penalty orders were required to be reconsidered by the assessing authority in the light of the correct construction of the rule.

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