The main legal point established in the judgment is that the imposition of penalty under Rule 96zo (3) of the Central Excise Rules, 1944 is discretionary and should be exercised judiciously, considering the circumstances of each case and the need to prove fraud, collusion, wilful misstatement, or suppression of facts for the imposition of minimum penalty.

, J.

1. This appeal has been preferred proposing following substantial questions of law: (a) Whether Commissioner/tribunal has discretion to reduce the mandatory penalty under the provisions of Rule 96zo (3)? (b) Whether penalty imposed under Rule 96zo (3) upon a manufacturer of non-alloy steel ingots falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) and who opted to pay duty under Sec.3a of the Central Excise Act, 1944 read with Induction Furnace Annual Capacity Determination Rules, 1997 but failed to pay the whole of the amount payable for any month by the 15th day or the last day of such month, as the case may be, is mandatory or discretionary in nature?

2. The respondent-assessee is engaged in manufacture of non alloy steel ingots falling under Chapter 72 of the Schedule to the Central Excise Tariff Act, 1985 which were chargeable to duty upto 31.3.2000 in terms of Sec.3a of the Central Excise Act, 1944 (in short, the Act) read with Notification No.30/97-CE (NT) dated 1.8.1997. The assessee opted to pay duty on lump sum basis in terms of Rule 96zo (3) of the Central Excise Rules, 1944 (in short, the Rules ). Monthly liability of the assessee was determined at Rs.5 lacs, which was to be discharged into two instalments, first instalment by 15th of the month and second instalment by the last day of the month. During the month of December 1997, the assessee failed to discharge its liability. Show cause notice for recovery of Rs.1,12,903/- with interest and penalty under Rule 96zo (3) of the Rules was issued. After considering the defence of the assessee, the duty alongwith interest and penalty of Rs.1,12,903/-was confirmed. The assessee preferred an appeal.

3. The Commissioner (Appeals) reduced the penalty to Rs.30000/-. The Tribunal dismissed the appeal of the revenue following judgment of the Allahabad High Court in Pee Aar Steels (P) Ltd. V/s. Commissioner of Central Excise, Merrut observing that imposition of penalty being discretionary, no interference was called for.

4. Learned Counsel for the revenue submitted that there was no element of discretion and once assessee defaulted in making the deposit, penalty equal to the amount of duty was liable to be paid. It was submitted that language of the rule was clear and there was no warrant for reading the penalty laid down as maximum or discretionary.

5. Learned Counsel for the assessee appearing in bunch of cases which were heard together, submitted that having regard to the settled principle of interpretation that penalty could be imposed only if there was element of mens rea and if there were aggravating or mitigating circumstances, element of discretion had to be read and the quantum of penalty ought to be read to be discretionary.

6. We have considered the rival submissions and perused the record.

7. Relevant provisions of Rule 96zo (3) of the Rules are as under: Notwithstanding anything contained elsewhere in these rules, if a manufacturer having a total furnace capacity of 3 metric tonnes installed in his factory so desires, he may, from the Ist day of September, 1997 to the 31st day of March, 1998 or any other financial year, as the case may be, pay a sum of rupees five lakhs per month in two equal installments, the first installment latest by the 15th day of each month and the second installment latest by the last day of each month, and the amounts so paid shall be deemed to be full and final discharge of his duty liability for the period from the Ist day of September, 1997 to the 31st day of March, 1998, or any other financial year, as the case may be, subject to the condition that the manufacturer shall not avail of the benefit, if any, under Sub-section (4) of the Sec.3a of the Central Excise Act, 1944 (1) of 1944: Provided that for the month of September, 1997, the Commissioner may allow a manufacturer to pay the sum of rupees five lakhs by the 30th day of September, 1997: Provided further that if the capacity of