2017 (7) TMI 92 - HC - Central Excise

Penalty u/r 96-ZO of the Central Excise Rules, 1944 - Whether the tribunal in reducing the penalty amount is justified in maintaining the penalty of ₹ 1,00,000/- in exercise of power under Rule 96-ZO of the Central Excise Rules, 1994? - Held that - Rule 96-ZO of the Rules provides for imposing of penalty equal to the outstanding amount of duty or ₹ 5,000/- whichever is greater. The aforesaid rule has been declared to be ultra vires insofar as it postulates to impose penalty equal to the amount outstanding vide Shree Bhagwati Steel Rolling Mills vs. Commissioner of Central Excise 2015 (11) TMI 1172 - SUPREME COURT - In view of the fact that the upper limit of imposing penalty equal to the amount outstanding has been declared to be ultra vires, a penalty of minimum of ₹ 5000/- or some reasonable higher amount alone can be imposed. The reduction of penalty even to Rs.One lac is unjustified more particularly as there is no material or basis to justify imposition of Rs.One lac as penalty - penalty is liable to be reduced to ₹ 5,000/- - appeal allowed - decided in favor of appellant.

Summary

Issues:
Reduction of penalty under Rule 96-ZO of the Central Excise Rules, 1994.

Analysis:
The appellant filed an appeal against the Tribunal's order reducing the penalty imposed under Rule 96-ZO of the Central Excise Rules, 1944 from Rs. 4,58,334/- to Rs. one lac. The appellant had defaulted in depositing the excise duty amount by 15 days, leading to the penalty imposition. The main question raised was whether the Tribunal was justified in maintaining the penalty at Rs. one lac under Rule 96-ZO of the Central Excise Rules, 1994. Rule 96-ZO allows for a penalty equal to the outstanding duty amount or Rs. 5,000/-, whichever is greater. However, this rule was declared ultra vires in a previous case, limiting the penalty to a minimum of Rs. 5,000/- or a reasonable higher amount.

The Court found that since the upper limit of penalty equal to the outstanding amount was deemed ultra vires, a penalty of at least Rs. 5,000/- or a justifiable higher amount could be imposed. The Court noted that there was no valid basis to justify the imposition of a penalty of Rs. one lac on the appellant. Therefore, the reduction of the penalty even to Rs. one lac was deemed unjustified, as there was no material or basis supporting such a high penalty amount. The Court concluded that both the penalty imposed by the Adjudicating Authority and the Tribunal were illegal and needed to be reduced to Rs. 5,000/-, which was deemed sufficient for the purpose. Consequently, the Court allowed the appeal, setting aside the previous penalty amount and reducing it to Rs. 5,000/-.