Penalty requires proven violation; penalties were set aside where remand only involved demand recomputation after Modvat credit adjustment.

Penalties were held unsustainable where the de novo proceedings followed remand, Modvat credit had been adjusted, and no proven breach of the Central Excise law was established. The earlier appellate order had already been set aside, and the dispute was confined to requantification of the demand after credit adjustment, not to any admitted violation of Rules 57C or 57F. A precedent concerning admitted contraventions was therefore inapplicable. Fastening penalty merely because no separate waiver order had been passed was treated as unsupported and without application of mind, so the penalties were set aside.

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Issues: Whether penalties imposed in de novo proceedings could be sustained when Modvat credit was adjusted on remand and no violation or offence by the assessees was established.

Analysis: The appellate authority had relied on a decision concerning admitted violations of Rules 57C and 57F of the erstwhile Central Excise Rules, 1944. That precedent was held inapplicable because, in the present matters, the dispute arose from discriminatory classification of the product and not from any admitted breach of the Central Excise law. The earlier appellate order had already been set aside in remand proceedings, and the demand was only requantified after giving credit adjustment. In that situation, fastening penalties merely because no separate waiver order had been passed was held to be without application of mind.

Conclusion: The penalties were not sustainable and were set aside in favour of the assessee.

Ratio Decidendi: Penalty cannot be imposed or sustained in the absence of a proven offence or violation, particularly where the earlier appellate order has been set aside on remand and the dispute is confined to demand recomputation after credit adjustment.

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