Penalty under rebate procedure fails when no rebate claim exists and the underlying statutory demand is unsustainable.

Penalty under Rule 25 could not be sustained where the demand based on Section 7 of the Sugar Export Promotion Act, 1958 had already failed after repeal of that statute before clearance of the goods. The alleged contravention founded on a rebate claim also could not stand because no rebate application by the manufacturer or exporter was shown, and that ground was not raised in the show cause notice. Rule 18 and Notification 40/01 apply in the rebate context, so in the absence of any rebate claim the legal foundation for penalty was missing. The appeals therefore succeeded and the penalty was set aside.

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Issues: Whether penalty could be sustained under Rule 18 and Notification 40/01 of the Central Excise Rules when no rebate claim had been made and the demand under Section 7 of the Sugar Export Promotion Act, 1958 had already failed because the Act had been repealed.

Analysis: The demand founded on Section 7 of the Sugar Export Promotion Act, 1958 was unsustainable because the statute had been repealed before clearance of the goods, as accepted in the order itself. The finding of contravention based on an alleged rebate claim could not be supported because no such ground had been raised in the notice and the record did not show any rebate application by the manufacturer or exporter. Rule 18 and Notification 40/01 operate in the context of a rebate procedure, and in the absence of any rebate claim the foundation for invoking penalty under Rule 25 was absent.

Conclusion: The penalty was not sustainable and the appeals succeeded.

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