Yes, the Appellate Authority could enhance the penalty. However, an order enhancing any fee or penalty or fine in lieu of confiscation or confiscating goods of greater value or reducing the amount of refund or input tax credit shall not be passed unless the appellant has been given a reasonable opportunity of showing cause against the proposed order.
(ICAI FAQ PUBLICATIONS 06-09-2017 APPEALS AND REVISIONS: FAQ NO. 13)