Proportionate penalty for delayed excise duty payment cannot be fixed mechanically without considering the length of delay and circumstances.

Penalty for delayed excise duty payment under Rule 96ZQ(5)(ii) must be proportionate to the length of the default and assessed in light of relevant circumstances; it cannot be imposed mechanically where the delay is only a few days. A penalty fixed without considering the period of delay and other material factors reflects non-application of mind. The penalty order was therefore set aside and the matter remitted for fresh determination of penalty on proper principles, while the duty-related consequences remained unaffected.

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Issues: Whether penalty imposed under Rule 96ZQ(5)(ii) of the erstwhile Central Excise Rules, 1944 for a short delay in payment of duty could be sustained without considering the period of delay and related circumstances.

Analysis: Rule 96ZQ(5)(i) provided for interest on delayed payment, while clause (ii) provided for penalty. The penalty under clause (ii) could not be imposed mechanically without regard to the length of delay, because the quantum of penalty must bear a reasonable relation to the extent of default. Where the delay was only a few days, failure to consider the period of delay and other relevant circumstances amounted to non-application of mind in fixing the penalty.

Conclusion: The penalty order could not stand as framed, and the matter required reconsideration by the authority for determination of penalty in accordance with the governing principles.

Final Conclusion: The penalty component was set aside and the matter was remitted for fresh determination of penalty, leaving the duty-related consequences intact.

Ratio Decidendi: Penalty for delayed payment of excise duty under Rule 96ZQ(5)(ii) must be proportionate to the length of delay and cannot be determined mechanically without considering relevant circumstances.

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