Retrospective excise liability cannot attract prior-period penalty or interest, and director penalty was also deleted.

Retrospective amendment under the Central Excise/Cenvat scheme created liability to recover the 8% amount on exempted clearances, but the Tribunal held that penal consequences and interest could not be enforced for the prior period when no operative recovery machinery or clear penal mandate existed. Applying the earlier Division Bench view, it set aside penalty and interest on the assessee while maintaining the underlying 8% demand. The Tribunal also held that personal penalty on the director was unsustainable under Rule 13 of the Cenvat Credit Rules, 2002 because the demand arose only from the retrospective amendment, and the director's penalty was deleted.

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Issues: (i) Whether penalty and interest could be sustained on the assessee for non-payment of the 8% amount on exempted clearances after the retrospective amendment; (ii) Whether personal penalty on the director was sustainable.

Issue (i): Whether penalty and interest could be sustained on the assessee for non-payment of the 8% amount on exempted clearances after the retrospective amendment.

Analysis: The assessee had manufactured dutiable and exempted goods using common inputs without maintaining separate accounts. The 8% amount was paid, and the dispute was confined to penalty and interest. The Tribunal noted that there was initially no recovery machinery under Rule 57CC of the Central Excise Rules, 1944 and Rule 6 of the Cenvat Credit Rules, 2002, and that Sections 82 and 83 of the Finance Act, 2005 introduced a retrospective amendment to recover the amount due. Following the earlier Division Bench decision on the same issue, it was held that where liability itself is created retrospectively, penal consequences and interest should not be enforced for the prior period.

Conclusion: Penalty and interest on the assessee were not sustainable and were set aside.

Issue (ii): Whether personal penalty on the director was sustainable.

Analysis: The Tribunal held that personal penalty could not be imposed under Rule 13 of the Cenvat Credit Rules, 2002 in a case where the demand arose only because of a retrospective amendment. The basis for penalty against the director was therefore absent.

Conclusion: Personal penalty on the director was not sustainable and was set aside.

Final Conclusion: The demand of the 8% amount was maintained, but the penalties and interest were deleted, resulting in a partial allowance of the appeals in favour of the assessee.

Ratio Decidendi: Where a fiscal liability is created or clarified retrospectively, penal consequences and interest for the earlier period are not to be imposed in the absence of an operative recovery mechanism and clear penal mandate.

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