Penalty under Central Excise law cannot survive when the underlying duty demand is barred by limitation and unsustainable.

Penalty under Section 11AC of the Central Excise Act could not survive once the underlying duty demand was held unsustainable for being raised beyond the normal limitation period under Section 11A(1). The demand related to a period outside the six-month limitation then applicable, and the longer period under the proviso to Section 11A(1) had already been found inapplicable. With the duty demand itself ceasing to exist, the legal foundation for penalty disappeared, and the penalty was set aside.

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Issues: Whether penalty under Section 11AC of the Central Excise Act, 1944 could survive when the duty demand was held unsustainable as raised beyond the normal period of limitation under Section 11A(1) of the Central Excise Act, 1944.

Analysis: The demand related to a period well beyond the normal six-month limitation then applicable under Section 11A of the Central Excise Act, 1944. The High Court had already held that the demand sustained with reference to the longer period under the proviso to Section 11A(1) was unsustainable. Once the underlying duty demand itself ceased to survive, the basis for imposition of penalty was removed.

Conclusion: The penalty was not sustainable and was set aside.

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