Rule 96ZO(3) penalty is discretionary absent mens rea, and quantum may be tailored to the default circumstances.

Penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 is not an invariable mandatory minimum where mens rea or intention to evade duty is absent. The provision must be read with its scheme of compounded duty, interest and default consequences, and contrasted with Section 11AC, which is linked to fraud, suppression and similar culpable conduct. In the absence of such ingredients, the authority may vary the penalty having regard to delay, the amount involved, the reasons for default and other relevant circumstances. That discretion must be exercised judiciously and is open to interference only if perverse or arbitrary.

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Issues: Whether penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 is mandatory or discretionary, and whether the quantum of penalty can be varied having regard to the facts of the case.

Analysis: Rule 96ZO(3) provides for payment of compounded duty in monthly instalments and also stipulates interest and penalty on default. The scheme of the rule was contrasted with Section 11AC of the Central Excise Act, 1944, which is attracted where duty evasion is accompanied by fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade duty. The absence of such ingredients in Rule 96ZO(3) was treated as material. The Court held that, in the absence of mens rea or intention to evade duty, the penalty provision under Rule 96ZO(3) cannot be read as an invariable mandatory minimum. Instead, the authority has discretion to determine the quantum of penalty according to the extent of delay, the amount involved, the reasons for delay, and other relevant circumstances. The discretion must be exercised judiciously and not arbitrarily, and appellate interference is justified only if the exercise of discretion is perverse or arbitrary.

Conclusion: Penalty under Rule 96ZO(3) is discretionary in cases where mens rea or intention to evade duty is not established, and the reduced penalty imposed in the case was upheld.

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