Finality of abandoned duty challenge and mandatory penalty under Rule 173Q where contravention is established

An assessee who had confined the lower appeal to penalty could not reopen the confirmed duty demand in a further appeal because that challenge had been expressly abandoned and the demand had attained finality. Penalty under Rule 173Q of the Central Excise Rules, 1944 was treated as mandatory once contravention was established; the appellate authority could interfere only if the original quantification was shown to be arbitrary or perverse. As no such finding was recorded, deletion of the penalty was unsustainable and the original penalty was restored.

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Issues: (i) Whether the assessee could challenge the confirmed duty demand in an appeal where the challenge before the lower appellate authority had been restricted only to the penalty; (ii) Whether the Commissioner (Appeals) was justified in setting aside the penalty imposed under Rule 173Q of the Central Excise Rules, 1944.

Issue (i): Whether the assessee could challenge the confirmed duty demand in an appeal where the challenge before the lower appellate authority had been restricted only to the penalty.

Analysis: The duty liability had been accepted by the assessee and the challenge to the confirmation of demand had been expressly given up before the lower appellate authority. Once the appeal below was confined to penalty alone, the adjudication on the demand attained finality and could not be reopened in the further appeal.

Conclusion: The assessee could not reopen the confirmed duty demand and the challenge on merits was not maintainable.

Issue (ii): Whether the Commissioner (Appeals) was justified in setting aside the penalty imposed under Rule 173Q of the Central Excise Rules, 1944.

Analysis: Penalty under Rule 173Q is mandatory once the contravention is established, though the authority retains discretion only as to the quantum. The appellate authority cannot substitute its own discretion for that of the adjudicating authority unless arbitrariness or perversity in the quantification is shown. In the present case, the Commissioner (Appeals) deleted the penalty solely on the basis of absence of mala fides and an interpretational issue, without recording any finding that the original quantification was arbitrary or perverse.

Conclusion: The deletion of penalty was unsustainable and the penalty as imposed by the adjudicating authority was restored.

Final Conclusion: The assessee's appeal failed, while the Department's appeal succeeded, with the penalty revived in accordance with the original adjudication.

Ratio Decidendi: Once default under the central excise law is established, penalty under Rule 173Q is obligatory and the appellate authority cannot delete it by substituting its own discretion unless the original quantification is shown to be arbitrary or perverse; an issue expressly given up below attains finality and cannot be reopened later.

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