Superseded excise rules cannot sustain Modvat credit recovery or penalty when proceedings rest on the old regime.

Proceedings for recovery of Modvat credit and penalty were unsustainable because they were founded on the Central Excise Rules, 1944 after those rules had been substituted by the Central Excise Rules, 2002. The Tribunal held that action must be taken under the legally applicable regime, and the superseded rules could not support the show cause notice, demand, or penalty. On that basis, the notice was treated as bad in law and the impugned proceedings were set aside.

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Issues: Whether the show cause notice and consequent demand and penalty for wrong availment of Modvat credit were sustainable after the Central Excise Rules, 1944 had been substituted by the Central Excise Rules, 2002.

Analysis: The notice sought recovery of credit and imposition of penalty under the erstwhile 1944 Rules, although the relevant provisions had already been replaced by the 2002 Rules. The Tribunal followed its earlier decisions holding that the erstwhile rules could not be invoked for action relating to credit taken under those rules after their substitution. On that basis, the notice itself was treated as legally unsustainable.

Conclusion: The show cause notice was bad in law and the demand and penalty could not be sustained.

Final Conclusion: The appeal succeeded because the impugned proceedings were set aside on the ground that the old excise rules could not be relied upon after substitution by the new rules.

Ratio Decidendi: Where the governing excise rules have been substituted, proceedings for recovery or penalty must rest on the legally applicable regime, and action founded solely on the superseded rules is not maintainable.

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