Limitation finding controls penalty exposure under Central Excise rules; penalty cannot exceed what the remand and sustained demand support.

Penalty under Rule 173Q was held unsustainable where an earlier final finding had already ruled out the extended period of limitation and confined the matter to duty for the normal period only. The later adjudication nevertheless imposed a penalty far exceeding the limited duty sustained, which was treated as an impermissible attempt to bypass the prior limitation ruling rather than a lawful consequence of the remand. The penalty was therefore set aside, and the principle stated is that any penalty must remain legally supportable on the restricted demand that survives the limitation finding.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules, 1944 was sustainable when the demand had been confined to the normal period of limitation and the remand was limited to determination of duty for that period.

Analysis: The earlier order had already held that the extended period of limitation was not available and had confined further adjudication to the normal period. The later adjudication nevertheless imposed a penalty of Rs. 10 lakhs, although the duty confirmed was only Rs. 434/- and the maximum penalty legally permissible, on the facts indicated, would be far below the amount imposed. The penalty was therefore viewed as an attempt to circumvent the earlier limitation finding rather than a lawful consequence of the remand.

Conclusion: The penalty was not justified and was set aside in favour of the assessee.

Ratio Decidendi: A penalty cannot be imposed in a manner that effectively overrides an earlier final finding that the extended period of limitation is unavailable, and it must remain legally supportable on the limited demand sustained.

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