Section 3A special scheme limits penalties where duty is duly discharged after broken machinery seals are found.

Where machinery seals were found broken under a Section 3A scheme, duty liability for the relevant month arose under Rule 96ZQ and was discharged within the prescribed time. On that basis, penalty was not warranted under Rule 96ZQ(6). The Section 3A scheme was treated as a comprehensive special scheme, so the general penal provisions of the Central Excise Act and Rules, including Rule 173Q, Rule 209A and Section 11AC, could not be sustained in the same manner. Penalty was therefore set aside while the duty payment position remained undisturbed.

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Issues: Whether penalty was sustainable under Rule 96ZQ, Rule 173Q, Rule 209A and Section 11AC in a Section 3A scheme where the machinery seals were found broken and duty for the relevant month had been discharged.

Analysis: The machinery was sealed as prescribed, but on inspection the seals were found broken and the machines were operational. Duty liability for the relevant month therefore arose under Rule 96ZQ(1), (2) and (3), and that liability was discharged within the prescribed time. In those circumstances, no penalty was warranted under Rule 96ZQ(6). The decision also applied the principle that the Section 3A scheme is a comprehensive special scheme, under which the general penal provisions of the Central Excise Act and Rules do not apply in the same manner, so penalty under Rule 173Q, Rule 209A or Section 11AC could not be sustained.

Conclusion: Penalty under Rule 96ZQ, Rule 173Q, Rule 209A and Section 11AC was set aside, while the duty payment position was left undisturbed.

Ratio Decidendi: In a Section 3A scheme, where duty liability arising from breach of the sealed machinery condition is duly discharged, penalty cannot be sustained by invoking the general penal provisions of the Central Excise Act and Rules.

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