Retrospective penalty under duty rules cannot apply where the penalty provision came into force after the default.

Penalty for non-payment of duty could not be imposed where the default occurred before Rule 96ZO(3) contained any operative penalty provision. The penalty clause was introduced only by later amendment effective from 1-5-1998, while the default related to the second fortnight of April 1998. Because no authorising provision existed on the date of default, the later amendment could not be applied retrospectively to sustain penalty. The penalty was therefore correctly dropped.

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Issues: Whether penalty could be sustained for non-payment of duty when, at the relevant time, Rule 96ZO(3) did not provide for such penalty and the penalty clause was introduced only by a later amendment.

Analysis: The default related to the second fortnight of April 1998, while the penalty provision was inserted in Rule 96ZO(3) by Notification No. 7/98-C.E. dated 10-3-1998 with effect from 1-5-1998. Since there was no operative provision authorising penalty on the date of default, the later amendment could not be applied to penalise the assessee for the earlier default.

Conclusion: The penalty was rightly dropped and the assessee succeeded on this issue.

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