Penalty cannot survive without a subsisting demand, and CENVAT credit penalties need proper notice and pleadings.

A penalty under Section 76 of the Finance Act, 1994 cannot survive once the underlying service tax demand has already been set aside, because the penalty has no independent foundation. The article also notes that no penalty can be imposed for alleged improper availment of CENVAT credit where the show-cause notice did not invoke any penal provision and the appeal did not properly challenge non-imposition of penalty. The operative principle is that penalty depends on a valid surviving demand or a properly pleaded penal basis; absent either, the Revenue's case fails.

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Issues: (i) Whether penalty under Section 76 of the Finance Act, 1994 could survive when the service tax demand itself had been set aside in the earlier Tribunal order; (ii) Whether penalty could be imposed for alleged improper availment of CENVAT credit when no penal provision had been invoked in the show-cause notice or challenged in appeal.

Issue (i): Whether penalty under Section 76 of the Finance Act, 1994 could survive when the service tax demand itself had been set aside in the earlier Tribunal order.

Analysis: The earlier Tribunal order had already set aside the demand confirmed by the adjudicating authority in respect of the same orders-in-original. Once the substantive demand no longer survived, the penalty founded on that demand had no independent basis. The Revenue's plea for penalty under Section 76 therefore could not be sustained.

Conclusion: The penalty under Section 76 was not sustainable and the Revenue's contention was rejected.

Issue (ii): Whether penalty could be imposed for alleged improper availment of CENVAT credit when no penal provision had been invoked in the show-cause notice or challenged in appeal.

Analysis: The adjudicating authority had not imposed any penalty for the alleged wrong availment of CENVAT credit. The show-cause notice also did not invoke any penal provision for such alleged contravention, and the appeal memorandum contained no challenge to the non-imposition of penalty under the relevant rules. In the absence of invocation of a penal provision and in the absence of a proper ground of appeal, the Revenue's argument for such penalty could not be accepted.

Conclusion: No penalty could be imposed for the alleged improper availment of CENVAT credit, and the Revenue's contention was rejected.

Final Conclusion: The appeals failed because the underlying demand had already been set aside and no independent basis remained for penalty, while the alleged CENVAT credit penalty was unsupported by the notice and appeal grounds.

Ratio Decidendi: A penalty cannot survive once the substantive demand is set aside, and a penalty for alleged contravention cannot be imposed unless the penal provision is invoked in the show-cause notice and properly put in issue.

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