Ultra vires penalty demand cannot survive when the rule creating liability has been struck down as void.

A penalty demand under Rule 96ZO(3) of the Central Excise Rules, 1944 could not be sustained because the rule forming the basis of liability had been declared ultra vires and therefore void. The Court held that its jurisdiction under Section 35G of the Central Excise Act is confined to the statutory scheme, and that the machinery provisions cannot be used to enforce a levy founded on a non-existent provision. As the substantial questions of law no longer survived once the underlying rule was struck down, the appeals failed and the penalty demand was not maintainable.

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Issues: Whether the penalty under Rule 96ZO(3) of the Central Excise Rules, 1944 could be sustained and reduced where the provision forming the basis of the demand had been held ultra vires, and whether the substantial questions of law survived for consideration.

Analysis: The appeals arose from defaults in payment of duty for short periods, but the decisive issue was whether the authorities could sustain a penalty demand founded on a rule that had subsequently been struck down as ultra vires. The Court held that its jurisdiction under Section 35G of the Central Excise Act, 1944 is confined to the statutory scheme and that a demand cannot be maintained on the basis of a provision that is void and non-existent. In that situation, the machinery provisions of the Act cannot be used to levy penalty under the invalid rule, and the substantial questions framed for decision did not survive.

Conclusion: The penalty demand could not be sustained, and the appeals were liable to be dismissed.

Final Conclusion: The decision affirms that tax authorities cannot enforce or maintain a levy founded on an ultra vires rule, even where the underlying default is admitted, and the appellate challenge consequently failed.

Ratio Decidendi: A demand or penalty cannot be sustained under statutory machinery when the provision creating that liability has been declared ultra vires and therefore void.

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