Penalty cannot be imposed on a unit that did not itself carry out the taxable manufacture or clearances

Penalty could not be imposed on a unit described as dubious or fictitious where the adjudication record showed that it had not itself manufactured, removed, or cleared goods. The liability was found to arise from transactions attributable to the original unit, and the court held that penalty must attach only to the entity that actually undertook the taxable acts. A unit cannot be treated as fictitious for one purpose while also being separately penalised for transactions found to belong to another unit. The cited precedent was read consistently with that principle.

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Issues: Whether penalty could be imposed on a unit found to be a dubious or fictitious unit, where the adjudicating authority had held that no manufacturing or clearance transactions were actually undertaken by that unit and that the entire transactions were attributable to the original unit.

Analysis: The reference arose from a finding that the clearances of two adjacent units were to be clubbed for duty purposes, with the duty liability fastened on the original unit. The Court held that the decisive question was not the physical existence of the alleged dubious unit, but whether it had itself carried out the transactions that attracted duty and penalty. Once the adjudication record showed that the alleged dubious unit did not undertake the manufacture or clearances and that the transactions were treated as those of the original unit, no separate penalty could be fastened on the unit that had not done the taxable acts. The decision in the cited precedent was read as supporting the same principle, namely that contradictory findings cannot be sustained by treating the same unit both as fictitious and as independently liable for the same transactions.

Conclusion: Penalty could not be imposed on the respondent unit, as it had not itself carried out the transactions giving rise to liability.

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