The imposition of penalties under the Central Excise Act is mandatory, but the quantum of penalty is discretionary, reflecting the gravity of the offence.

1 Commissioner of Central Excise and Customs is the appellant in all the appeals and respondent in the review petitions. Commissioner is aggrieved by the order of the Customs. Excise and Service Tax Appellate Tribunal, South Zonal Bench in C. E. Appeal Nos. 6, 3 and 34 of 2005 reducing the quantum of penalty from what has been statutorily prescribed under S.11AC of the Central Excise Act, 1944. C. E. Appeal Nos. 32 and 33 of 2005 have been filed by the Commissioner aggrieved by the reduction of quantum of penalty prescribed under R.96 ZP (3) (ii) of the Central Excise Rules, 1944 by the Tribunal. C. E. Appeal No. 42 of 2005 was also filed by the Commissioner aggrieved by the reduction of the quantum of penalty imposed under R.96Z P(l)(i) of the Rules. C. E. Appeal Nos. 8 and 27 of 2004 were filed by the review petitioners in R. P. Nos. 803 and 804 of 2005 pointing out the fact that this court while disposing of those appeals did not consider the grievances of the petitioners against the imposition of maximum penalty under R.96 ZO (II)(C) of the Central Excise Rules, 1944. Counsel submitted that the authorities on a wrong interpretation of S.96 ZO (II)(C) imposed the maximum penalty which was unwarranted in the facts and circumstances of the case.

2 The question that is posed for consideration in all these cases is whether assessing authority is duty bound to impose the maximum penalty as provided in the above mentioned provisions without any element of discretion statutorily conferred on them for reduction of penalty. Sri. C. S. Gopalakrishnan Nair, counsel for the review petitioners submitted that though imposition of penalty is mandatory once an offence is detected. It is not mandatory on the part of the authorities to impose the maximum penalty. The authorities have always got an element of discretion depending upon the facts and circumstances of each case and the nature and gravity of the offence. Assistant Solicitor General Sri. John Varghese on the other hand contended that statutory provision gives no element of discretion on the authorities and they are bound to impose the maximum penalty strictly in terms of the statutory provisions. In the wake of these contentions it is necessary to examine the various statutory provisions under which penalties have been imposed by the authorities under the Central Excise Act including the Commissioner and the Tribunal. For easy reference we may first refer to S.11 AC of the Act, 1944 with which we are concerned in C. E. Appeal Nos. 6, 3 and 34 of 2005. The said Section is extracted below.
11 AC. Penalty for short levy or non levy of duty in certain cases. Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-s.(2) of S.11 A. shall also be liable to pay a penalty equal to the duty so determined:
Provided that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the duty as reduced or increased, as the case may be, shall be taken into account."
The Deputy Commissioner of Central Excise and Customs, Kochi passed order dated 26-01-1998 confirming the demand of Rs.2,04,274/- towards central excise duty and also ordered confiscation of 7,592.5 kgs. of formic acid valued at Rs.3,79,625/- under R.173Q of the Central Excise Rules, 1944. Further the officer also imposed penalty of Rs. 2,04,274/-, equal to the amount of duty attempted to be evaded under S.11 AC of the Central Excise Act, 1944. Contention was raised before the appellate authority that imposition of maximum penalty was not justified. Appellate Authority however reduced th