Penalty for breach of an unconstitutional excise rule cannot survive; Tribunal set aside the penalty and granted relief.

Penalty under Rule 25(1) of the Central Excise Rules, 2004 could not be sustained where it was founded solely on breach of Rule 8(3A), because that rule had already been declared unconstitutional by the High Court. Once the underlying provision ceased to stand, the alleged contravention could not support penal action. The Tribunal therefore set aside the penalty and granted consequential relief to the assessee. The explanation based on financial difficulty and later payment of duty and interest was not treated as the basis for the decision.

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Issues: Whether penalty under Rule 25(1) of the Central Excise Rules, 2004 could be sustained for contravention of Rule 8(3A) of the Central Excise Rules, 2004.

Analysis: The penalty was imposed solely on the footing that the appellant had contravened Rule 8(3A) by making delayed duty payments and, therefore, was barred from utilising Cenvat credit for subsequent clearances. The Tribunal noted that the validity of Rule 8(3A) had already been struck down as unconstitutional by the High Court, and once that rule could not stand, penalty founded on its breach could not survive. The explanation regarding financial difficulty and later payment of duty and interest was not made the basis of the decision.

Conclusion: The penalty under Rule 25(1) was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded to the extent of deletion of the penalty, with consequential reliefs.

Ratio Decidendi: A penalty imposed exclusively for breach of a rule that has been declared unconstitutional cannot be sustained.

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