Strict construction of exemption notifications leaves additional excise duty outside the exemption, while penalty needs clear statutory authority.

Notification No. 8/99-C.E. was construed strictly and held to exempt only the duties of excise specified in the First and Second Schedules to the Central Excise Tariff Act, 1985; it did not extend to the additional duty of excise under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, so the duty demand was sustained. On penalty, the absence of clear statutory authority under the relevant enactment meant the penalty could not be sustained, and the adjustment made against the sanctioned refund was set aside. The amount earlier adjusted towards penalty was therefore refundable to the assessee.

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Issues: (i) whether Notification No. 8/99-C.E. granted exemption from additional duty of excise leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957; and (ii) whether penalty could be sustained and adjusted against the sanctioned refund.

Issue (i): Whether Notification No. 8/99-C.E. granted exemption from additional duty of excise leviable under the Additional Duties of Excise (Goods of Special Importance) Act, 1957.

Analysis: The notification exempted only the duties of excise specified in the First and Second Schedules to the Central Excise Tariff Act, 1985. It did not expressly extend to the additional duty levied under the 1957 Act. Exemption notifications are construed strictly, and the expression used in the notification could not be enlarged beyond its plain scope.

Conclusion: The exemption did not cover the additional duty of excise, and the demand was sustained.

Issue (ii): Whether penalty could be sustained and adjusted against the sanctioned refund.

Analysis: The provision relied upon for penalty had not been incorporated into the levy under the relevant enactment in the manner required to sustain penalty. The absence of express authority for penalty was decisive, and the principle that fiscal exactions, including penalty, require clear legal authority applied. Once the penalty was set aside, the adjustment made against the sanctioned refund could not survive.

Conclusion: Penalty was not sustainable, and the amount adjusted towards penalty was refundable to the assessee.

Final Conclusion: The demand of duty was upheld, but the penalty was set aside and consequential refund relief was granted in respect of the amount earlier adjusted.

Ratio Decidendi: Exemption notifications in fiscal statutes must be strictly construed according to their express terms, and penalty cannot be imposed or retained without clear statutory authority.

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