Mandatory penalty under Rule 96ZP(3) upheld, but reduced where duty was later paid and circumstances justified moderation.

Penalty under Rule 96ZP(3) for failure to pay duty under the compounded levy scheme was held mandatory, so complete deletion of penalty by the Commissioner (Appeals) was unsustainable. As the duty liability had already been discharged and the validity of the scheme was pending before the Apex Court, the Tribunal moderated the quantum on the facts and sustained penalty at a reduced amount instead of setting it aside entirely. The order deleting the penalty was therefore modified in favour of Revenue, with penalty remaining payable.

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Issues: Whether penalty under Rule 96ZP(3) was mandatory for non-payment of duty and whether the Commissioner (Appeals) was justified in quashing the entire penalty.

Analysis: The respondents had not discharged the duty liability within time, and the show cause notice was issued for the relevant period. The Tribunal noted that, in terms of the governing rule and the applicable precedent, penalty for failure to pay the full duty under the compounded levy scheme was mandatory. The complete deletion of penalty by the Commissioner (Appeals) was therefore unsustainable. At the same time, since the duty had already been paid and the validity of the scheme itself was under consideration before the Apex Court, the Tribunal considered the facts relevant to quantifying a reduced penalty.

Conclusion: The quashing of the entire penalty was set aside, and penalty was upheld with modification to Rs. 30,000, in favour of Revenue.

Final Conclusion: The appeal succeeded, and the order of the Commissioner (Appeals) was modified so that penalty remained payable, though in a reduced amount.

Ratio Decidendi: Penalty under Rule 96ZP(3) for non-payment of duty under the compounded levy scheme is mandatory, but the quantum may be moderated on the facts where the duty has subsequently been paid.

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