Derivative excise demand fails when the foundational order is set aside on limitation, leaving no basis for penalty.

A central excise demand and equal penalty were held unsustainable where the confirmation against the appellant rested entirely on an adjudication order against the Chennai unit that had already been set aside on limitation. Once the foundational order ceased to exist, the derivative demand could not survive, and the appellate confirmation was set aside. The result was that the demand and penalty failed with the collapse of the underlying basis for liability.

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Issues: Whether the demand of central excise duty and equal penalty against the appellant could survive when the foundational order against the Chennai unit had already been set aside on limitation.

Analysis: The demand confirmed against the appellant was based on the adjudication against the Chennai unit. That foundational order had been set aside by the Tribunal on the ground of limitation. Once the basis for the present confirmation no longer survived, the impugned appellate order could not stand.

Conclusion: The demand and penalty were unsustainable and the appeal was allowed.

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