ACP-based duty demand and compounded levy penalty fail where the underlying order is set aside and penalty powers are ultra vires.

Where a duty demand was founded on an earlier ACP order that had already been set aside and remitted for fresh determination, the consequential demand could not survive until lawful reassessment was made. The Tribunal's setting aside of the demand was upheld, and the Revenue's challenge failed. Penalty imposed under the compounded levy scheme was also unsustainable because the penalty provisions in that framework had been held ultra vires by binding Supreme Court authority. The High Court therefore upheld the Tribunal's common order in full, leaving the remand on ACP and the deletion of penalty intact.

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Issues: (i) whether the demand notices could be sustained when the basis of demand was an ACP order earlier set aside and the matter was remanded for fresh determination; (ii) whether the penalty imposed under the compounded levy scheme could survive.

Issue (i): whether the demand notices could be sustained when the basis of demand was an ACP order earlier set aside and the matter was remanded for fresh determination.

Analysis: The demand of duty was founded on the ACP communicated earlier, which had been set aside in the prior round. The Tribunal had held that once that basis was treated as non est, the demand could not stand until ACP was freshly determined in accordance with law. The High Court found no error in that approach and held that the revenue's challenge to the remand and the consequential setting aside of the duty demand did not warrant interference.

Conclusion: The issue was decided against the Revenue.

Issue (ii): whether the penalty imposed under the compounded levy scheme could survive.

Analysis: The penalty was imposed with reference to the scheme under the Central Excise Rules. Relying on the binding Supreme Court ruling that the penalty provisions in the compounded levy framework were ultra vires, the High Court held that penalty could not be sustained, while the scheme in other respects remained undisturbed. This defeated the revenue's challenge on penalty as well.

Conclusion: The issue was decided against the Revenue.

Final Conclusion: The common judgment of the Tribunal was upheld and the revenue's appeals failed in their entirety, leaving the remand on ACP and the setting aside of penalty intact.

Ratio Decidendi: Where the very basis of duty demand has been set aside and the matter is remitted for fresh statutory determination, the consequential demand cannot survive until a valid reassessment is made, and a penalty provision held ultra vires cannot be enforced.

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