The Tribunal erred in reducing the penalty, which, as per statutory requirements, must be mandatory without discretion.

1. This appeal is filed against the judgment and final order No. 123/2004 - B dated 05.11.2003 passed in Appeal No. E / 1122 of 2003 - B by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi whereby the Tribunal partly allowed the appeal and reduced the amount of penalty from Rs.2,06,000/- to Rs.50,000/-.

2. We herein set out the facts, in brief, to appreciate the issue involved in this appeal.

3. The respondent - a Limited Company is engaged in the manufacture of parts of Railways and Tramways stock classifiable under Chap.86 including smoothing Reactors falling under Chap.85.04 of the Schedule to the Central Excise Tariff Act, 1985. The respondent also undertakes the activity of modification / up - gradation of old Smoothing Reactors received from the Railways.

4. During the course of modification, the weight of copper coil in the old smoothing reactors is increased by adding new copper coil to the existing old copper coil.

5. It was, however, observed by the authority concerned that the respondent manufactured copper coils from the copper strips and used them capatively in the up - gradation of smoothing reactors. The respondent, however, neither paid any duty on the copper coil used by them capatively in their modification activity undertaken at the relevant period nor did they submit the requisite declaration under R.173 - C of the Central Excise Rules, 1944 (hereinafter referred to as "the Rules").

6. Since no duty was paid by the respondent on upgraded reactors, they were not eligible for the benefit of exemption provided vide Notification No. 67/95 - CE dated 16.03.1995. They were, therefore, required to pay duty on copper coils as an intermediate product which was meant for captive consumption.

7. This led to issuance of show cause notice dated 17.04.2001 to the respondent by the adjudicating authority proposing therein the demand of unpaid duty payable by the respondent on the aforementioned goods and also penalty. By order dated 25.02.2003, the adjudicating authority confirmed the demand of duty for Rs.2,05,291/- along with interest under S.11 - AB of the Central Excise Act, 1944 (hereinafter referred to as "the Act"). The authority also imposed a penalty of Rs.2,06,000/- under S.11 - AC of the Act read with R.173 - Q of the Rules.

8. Felt aggrieved by the aforesaid order, the respondent(assessee) filed appeal before the Tribunal. The respondent, however, did not challenge the demand of duty but confined their challenge only to imposition of penalty and, in particular, its quantum. According to the respondent, having regard to the totality of the facts and circumstances of the case, at best, nominal amount of penalty could be levied on the respondent but not the one imposed.

9. By impugned order dated 05.11.2003, the Tribunal partly allowed the respondent's appeal and reduced the amount of penalty from Rs.2,06,000/- to Rs.50,000/-. It is against this order, the Revenue has filed this appeal by way of special leave before this Court.

10. Heard Mr. K. Radhakrishnan, learned senior counsel for the appellant. None appeared for the respondent.

11. Mr. Radhakrishnan, learned senior counsel appearing for the appellant(Revenue) while assailing the legality and correctness of the impugned order contended that keeping in view the law laid down by this Court in Union of India & Ors. Vs. Dharamendra Textile Processors & Ors., 2008 (13) SCC 369 , which unfortunately was not taken note of by the Tribunal though it has direct bearing over the issue in question, the impugned order cannot be said to be legally sustain