Penalty under Rule 209A fails when duty evasion allegation collapses, and new grounds cannot be added in de novo proceedings.

Where the foundational allegation of clandestine manufacture or duty evasion failed, the consequential penalty under Rule 209A for alleged abetment also could not stand. CESTAT further held that a penalty cannot be sustained or enhanced in de novo proceedings on a new basis that was not part of the show cause notice, because such a ground lies outside the scope of the original proceedings. On that reasoning, the penalties were found unsustainable and were set aside.

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Issues: Whether penalties imposed under Rule 209A of the Central Excise Rules, 1944 could survive when the demand against the alleged manufacturer was dropped, and whether the penalty could be enhanced on a fresh basis in de novo proceedings without such ground being part of the show cause notice.

Analysis: The demand of duty against the alleged manufacturer was held unsustainable, and once that foundational allegation failed, the collateral allegation that the appellants had abetted evasion of duty could not stand. The penalty order was also sustained on a new footing that was not the subject-matter of the show cause notice. A penalty under Rule 209A could not be supported by introducing a fresh ground in de novo proceedings, nor could the penalty be enhanced manifold from the earlier order on such a basis.

Conclusion: The penalties were unsustainable and were set aside.

Ratio Decidendi: Where the foundational allegation of clandestine manufacture or duty evasion fails, a consequential penalty for abetment cannot be sustained, and penalty proceedings cannot be enlarged on a ground not contained in the show cause notice.

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