Compounded levy penalty must reflect case facts, and allowed duty remission can be adjusted against outstanding dues.

Under the compounded levy regime, penalty for delayed duty payment is not automatically fixed at the full amount of the default; the quantum must be determined on the facts and circumstances of each case, and a uniform rule of equal penalty was rejected. The assessee's belated payment with interest, coupled with financial hardship, justified a reduced penalty. A duty remission already allowed to the assessee could also be set off against outstanding duty dues, so the remission amount was properly adjusted. The Revenue's challenge on both issues failed, and the order reducing penalty and permitting adjustment was upheld.

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Issues: (i) whether penalty under the fourth proviso to Rule 96ZP(3) of the Central Excise Rules, 1944 had to be imposed at the full amount of delayed duty payment in the facts of the case; (ii) whether the amount of duty remission allowed to the assessee could be adjusted against the outstanding duty dues.

Issue (i): whether penalty under the fourth proviso to Rule 96ZP(3) of the Central Excise Rules, 1944 had to be imposed at the full amount of delayed duty payment in the facts of the case

Analysis: The assessee was operating under the Compounded Levy Scheme and was liable to pay duty under Section 3A of the Central Excise Act, 1944. Though duty was deposited belatedly along with interest after show cause notices, the delay was found to have been caused by financial and that explanation had been accepted in appeal. The provision contemplated penalty for default, but the quantum was to be determined on the facts and circumstances of each case. A uniform rule that every default must necessarily attract penalty equal to the delayed duty was rejected. On the facts, the precedent relied upon by the Revenue was held inapplicable.

Conclusion: The reduced penalty was justified and the Revenue's challenge on this issue failed.

Issue (ii): whether the amount of duty remission allowed to the assessee could be adjusted against the outstanding duty dues

Analysis: The assessee's remission claim for Rs. 1,25,000/- had already been allowed. Once remission of duty was granted, that amount was liable to be taken into account against the assessee's outstanding dues. The objection that such adjustment could not be permitted was therefore rejected.

Conclusion: The remission amount was rightly directed to be adjusted against the outstanding dues.

Final Conclusion: The order reducing penalty and permitting adjustment of the remission amount was upheld, and the Revenue's appeal failed.

Ratio Decidendi: While default in duty payment under the compounded levy regime may justify penalty, the quantum is not mechanically fixed at the delayed duty amount and must be determined on the facts and circumstances of the case; a duty remission, once allowed, can be adjusted against outstanding dues.

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