Ultra vires compounded levy rules cannot sustain duty and penalty demands under the invalidated hot air stenter scheme.

Duty demands and penalties under the compounded levy scheme for hot air stenters could not survive after Rule 3 of the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1997, and the notification issued under it were declared ultra vires Section 3A of the Central Excise Act, 1944. The controlling High Court ruling was applied, so the consequential demand and penalty founded on the invalidated regime were set aside. Relief was granted to the appellants, with liberty to the department to proceed under Section 3 of the Central Excise Act, 1944 in accordance with law.

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Issues: Whether the demand of duty and penalty arising under the compounded levy scheme, based on Rule 3 of the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1997 and Rule 96ZQ(5) of the Central Excise Rules, 1944, could be sustained after the rule and the notification issued thereunder had been struck down as ultra vires.

Analysis: The appeals were decided on the basis that the governing controversy had already been settled by the Madras High Court. Since Rule 3 of the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1997 and the notification issued under it had been declared ultra vires Section 3A of the Central Excise Act, 1944, the duty demand and penalties founded on that rule could not survive. The cited High Court ruling was applied as controlling authority for the present dispute.

Conclusion: The demand and penalties were held not sustainable, and the appeals were allowed with liberty to the department to proceed under Section 3 of the Central Excise Act, 1944 in accordance with law.

Final Conclusion: The impugned order was set aside and the appellants obtained relief from the duty and penalty demands founded on the invalidated compounded levy regime.

Ratio Decidendi: Where the foundational rule and notification of a levy scheme are struck down as ultra vires the enabling provision, consequential duty demands and penalties based on that scheme cannot be sustained.

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