2025-VIL-1058-GUJ-CE
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CENTRAL EXCISE High Court Cases

Central Excise – Imposition of mandatory penalty, Validity of Rules 96ZO, 96ZP and 96ZQ of Central Excise Rules, 1944 - Appellant was availing the Compound Levy Scheme prescribed under Section 3A of the Central Excise Act, 1944 read with Rule 96ZO(3) of the Central Excise Rules, 1944. Due to financial difficulties, the appellant discontinued the production activities from 17.12.1997 onwards - Dept issued show-cause notices for levy of duty along with interest and penalty under Rule 96ZO read with Section 11AC of the Central Excise Act, 1944 - Whether the provisions of Rule 96ZO, 96ZP and 96ZQ of the Central Excise Rules, 1944 imposing mandatory penalty equal to the amount of duty can be sustained - HELD - The Supreme Court in the case of Shree Bhagwati Steel Rolling Mills v. Commissioner of Central Excise held that the provisions of Rule 96ZO, 96ZP and 96ZQ of the Central Excise Rules, 1944 imposing mandatory penalty equal to the amount of duty are unconstitutional and violative of Articles 14 and 19(1)(g) of the Constitution. The penalty provisions under these Rules are arbitrary and excessive when contrasted with the penalty provisions under Section 37 of the Central Excise Act, 1944 which provide for a much lower penalty. The imposition of mandatory penalty under these Rules is without authority of law - The penalty levied on the appellant under Rule 96ZO of the CER, 1944 read with Section 11AC of the CEA, 1944 cannot be sustained. The impugned order of the Tribunal upholding the penalty is quashed and set aside - The appeal of the appellant is allowed
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