Penalty under Central Excise Rules set aside where the underlying credit restriction had been struck down as unconstitutional.

Penalty under Rule 25(1) of the Central Excise Rules, 2002 was not sustainable where the alleged contravention arose from delayed duty payment and clearance of goods using Cenvat credit contrary to Rule 8(3A), because the Tribunal followed its earlier ruling that the restriction underlying the penalty had been struck down as unconstitutional. Since the duty and interest had already been paid and the appeal was confined to the penalty component, the penalty was set aside. The remaining part of the order was left undisturbed.

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Issues: Whether penalty under Rule 25(1) of the Central Excise Rules, 2002 was sustainable for delayed payment of duty and consequent clearance of goods by utilising Cenvat credit in breach of the restriction under Rule 8(3A) of the Central Excise Rules, 2002.

Analysis: The appeal was confined to the penalty component. The delay in payment of duty was stated to have occurred on account of financial difficulty, and the duty with interest had been discharged. The Tribunal followed its earlier decision on the same legal issue, where penalty under Rule 25 was held not to survive when the underlying restriction on utilisation of Cenvat credit under Rule 8(3A) had been struck down as unconstitutional. On that reasoning, the penalty imposed for the alleged contravention could not be sustained.

Conclusion: Penalty under Rule 25(1) was set aside and the issue was answered in favour of the assessee.

Final Conclusion: The penalty portion of the impugned order was annulled, while the remainder of the order was left undisturbed.

Ratio Decidendi: Where the statutory restriction forming the basis of penalty cannot validly sustain the contravention alleged, penalty under Rule 25(1) for breach of that restriction is not maintainable.

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