Contemporaneous penalty rule sustains excise penalty even when later inserted Section 11AC is inapplicable

Penalty for a period before insertion of Section 11AC of the Central Excise Act could not rest on that provision alone, but it remained sustainable where Rule 173Q of the Central Excise Rules was also invoked and independently authorised penalty during the relevant period. The later inapplicability of Section 11AC did not invalidate an order that was otherwise supportable under an operative contemporaneous rule. The order deleting the penalty was therefore set aside and the penalty upheld.

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Issues: Whether penalty could be sustained for the period prior to insertion of Section 11AC of the Central Excise Act, 1944 when the show cause notice and order also invoked Rule 173Q of the Central Excise Rules, 1944.

Analysis: Section 11AC came into force only from 28.09.1996, so it could not by itself support penalty for an earlier period. However, Rule 173Q independently empowered the authorities to impose penalty, and the penalty actually imposed was within that rule's ambit. Where the penalty is supportable on a valid contemporaneous rule, the setting aside of penalty merely because Section 11AC was inapplicable is unsustainable.

Conclusion: The penalty was validly imposed and the order deleting it was set aside.

Ratio Decidendi: If a penalty order is supportable under a rule that was operative during the relevant period, the inapplicability of a later inserted statutory provision does not by itself nullify the penalty.

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