Omission of parent charging provision ends Rule 96ZO proceedings and renders delegated interest and penalty provisions unenforceable.

Omission of Section 3A of the Central Excise Act, 1944 without a saving clause meant that proceedings under Rule 96ZO could not continue, because the subordinate levy machinery could not survive once the parent charging provision disappeared. Section 6 of the General Clauses Act was treated as inapplicable in this context, and Section 38A could not preserve proceedings where the substantive source of levy had been omitted. The interest and penalty components in Rule 96ZO(3) were also held to lack express statutory authority, since a general rule-making power could not independently create such liabilities. The rule was therefore treated as ultra vires and unenforceable.

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Issues: (i) Whether proceedings initiated under Rule 96ZO could continue after omission of Section 3A of the Central Excise Act, 1944 without a saving clause. (ii) Whether the interest and penalty provisions contained in Rule 96ZO(3) were supported by the parent Act and were validly enforceable.

Issue (i): Whether proceedings initiated under Rule 96ZO could continue after omission of Section 3A of the Central Excise Act, 1944 without a saving clause.

Analysis: The substantive source of the compounding scheme was Section 3A, under which Rule 96ZO and the capacity-based levy operated. Once that parent provision was omitted by Section 121 of the Finance Act, 2001, and no saving clause preserved pending proceedings, the subordinate levy machinery could not survive on its own. Section 6 of the General Clauses Act, 1897 was held inapplicable to a case of omission in this context, and Section 38A of the Central Excise Act, 1944 could not preserve proceedings where the parent charging provision itself had disappeared. The earlier tribunal rulings relied upon were followed.

Conclusion: The pending proceedings could not be continued after omission of Section 3A, and the demand based on Rule 96ZO was unsustainable.

Issue (ii): Whether the interest and penalty provisions contained in Rule 96ZO(3) were supported by the parent Act and were validly enforceable.

Analysis: Interest on delayed payment and penalty are substantive liabilities and require clear legislative authority. The Central Excise Act, 1944 did not confer an express power enabling the rule-making authority to create such liabilities under the scheme of Section 3A. Section 37, being a general rule-making power, was insufficient to sustain a delegated levy of interest or penalty, and the impugned proviso went beyond the delegated power. The tribunal therefore treated the interest and penalty stipulations as lacking authority of law.

Conclusion: The interest and penalty provisions in Rule 96ZO(3) were ultra vires and unenforceable.

Final Conclusion: The appeal succeeded, the impugned order was set aside, and the assessee obtained complete relief from the confirmed duty, interest, and penalty demands.

Ratio Decidendi: Where the parent charging provision is omitted without a saving clause, the subordinate levy machinery and connected proceedings do not survive, and delegated rules cannot independently impose interest or penalty without express statutory authorization.

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