Mandatory penalty under compounded levy rules applies on delayed duty payment; equitable reduction not available

Failure to pay duty within time under the compounded levy scheme attracted the fourth proviso to Rule 96ZO(3) of the Central Excise Rules, 1944 as a mandatory penalty provision. The provision was treated as pari materia with the corresponding steel re-roller rule, and the greater of the duty amount or the fixed sum of Rs. 5,000 was regarded as the only leviable penalty on default. Because the assessee delayed payment after abatement orders, equitable reduction was rejected. The reduced penalty fixed by the lower appellate authority was left undisturbed since the Revenue had not challenged that reduction, and the assessee's challenge failed.

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Issues: Whether, on failure to pay duty within the prescribed time under the compounded levy scheme, the penalty under the fourth proviso to Rule 96ZO(3) of the Central Excise Rules, 1944 was mandatory and liable to be sustained at the higher amount.

Analysis: The provision governing steel ingots under Rule 96ZO(3) was treated as pari materia with the corresponding rule applicable to steel re-rollers. On that basis, the ruling of the High Court under the analogous provision was applied. The fourth proviso was interpreted as making the greater of the duty amount and the fixed sum of Rs. 5,000 the only penalty leviable upon default in timely payment of duty. Since the assessee had delayed payment after receiving abatement orders, the statutory penalty attracted by the default could not be reduced on equitable grounds. The fact that the lower appellate authority had reduced the penalty was not disturbed because the Revenue had not challenged that reduction.

Conclusion: The penalty under Rule 96ZO(3) was held to be mandatory at Rs. 2,83,920, and the assessee's challenge to the reduced penalty failed.

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