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Issues: (i) whether penalty imposed under Rule 173Q of the Central Excise Rules, 1944 could survive when the duty demand was not confirmed, and whether the lapse was properly punishable under Rule 226 of the Central Excise Rules, 1944 for non-maintenance of the RG-1 register; (ii) whether the penalty imposed on the partner of the firm could be questioned in the appeal filed only by the firm.
Issue (i): Whether penalty imposed under Rule 173Q of the Central Excise Rules, 1944 could survive when the duty demand was not confirmed, and whether the lapse was properly punishable under Rule 226 of the Central Excise Rules, 1944 for non-maintenance of the RG-1 register.
Analysis: The duty demand against the firm had not been confirmed, and therefore the penalty originally imposed under Rule 173Q could not be sustained. At the same time, the record showed improper maintenance of the RG-1 register and admission of the shortage by the partner, which supported action for non-accountal under Rule 226. The penalty was therefore liable to be re-characterised under the appropriate provision.
Conclusion: The penalty under Rule 173Q was set aside in substance and converted into a penalty under Rule 226, with the amount reduced to Rs. 2,000/-.
Issue (ii): Whether the penalty imposed on the partner of the firm could be questioned in the appeal filed only by the firm.
Analysis: The appeal memo showed the firm alone as the appellant, and the partner was not arrayed as a separate appellant. No independent appeal had been filed by the partner. In these circumstances, the challenge to the penalty imposed on the partner could not be entertained in the present appeal.
Conclusion: The penalty on the partner was not open to challenge in the appeal filed only by the firm.
Final Conclusion: The order was modified by replacing the penalty under Rule 173Q with a reduced penalty under Rule 226, while leaving undisturbed the separate penalty on the partner.
Ratio Decidendi: Where the duty demand is not confirmed, penalty under Rule 173Q cannot be sustained, but a proven lapse in maintenance of statutory records may attract penalty under the appropriate non-accountal provision; a penalty imposed on a person who has not appealed cannot be challenged in an appeal filed only by the firm.
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