Penalty under Rule 173Q must be proportionate to surviving credit disallowance after rectification of an omitted finding.

Where credit disallowance survived only in part, a composite penalty under Rule 173Q could not remain unchanged if the final order omitted any finding on penalty. That omission was treated as a rectifiable error, and the penalty had to be aligned with the limited extent of the sustained demand. The rectification application was allowed, and the penalty was reduced to reflect the partial relief granted on the credit disallowance.

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Issues: Whether the penalty imposed under Rule 173Q required reduction in proportion to the relief granted in respect of the credit disallowance, and whether the rectification application was maintainable for that purpose.

Analysis: The Tribunal noted that the final order had not recorded any finding on the penalty, although credit had been disallowed only in respect of one of the three items and relief had been granted on the remaining items. In that situation, the omission concerning penalty was treated as an error warranting rectification. Since the disallowance survived only in part, the composite penalty imposed by the lower authority could not remain unaltered and had to be adjusted to reflect the limited sustainment of the demand.

Conclusion: The rectification application was allowed and the penalty was reduced from Rs. 30,000/- to Rs. 10,000/-.

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