Ultra vires levy of interest and penalty fails where the enabling rules have been invalidated.

Interest and penalty imposed under Rule 96ZP(3)(i) and Rule 96ZP(3)(ii) of the Central Excise Rules, 1944 could not survive once the provisions authorising such levy had been declared ultra vires. The levy arose under the compounded levy scheme under Section 3A of the Central Excise Act, 1944, but the penal and interest machinery depended entirely on the invalid rules. As the statutory foundation for the demand had disappeared, the charges could not be sustained and the orders imposing interest and penalty were set aside in favour of the assessee.

---

---

Issues: Whether interest and penalty levied under Rule 96ZP(3)(i) and Rule 96ZP(3)(ii) of the Central Excise Rules, 1944 could survive after the provisions governing such levy had been declared ultra vires.

Analysis: The dispute related to levy under the compounded levy scheme introduced under Section 3A of the Central Excise Act, 1944. The basis for the impugned levy was the penal and interest machinery contained in Rule 96ZP. In view of the declaration that the relevant rules providing for interest and penalty had been held invalid, the foundation for sustaining the impugned demand and penalty disappeared.

Conclusion: The interest and penalty levied on the assessee could not be sustained and the question was answered in favour of the assessee and against the Department.

Final Conclusion: The appeal succeeded and the orders imposing interest and penalty were set aside.

Ratio Decidendi: Once the statutory provisions authorising interest and penalty are declared ultra vires, any levy made solely under those provisions cannot be sustained.

---