Revenue appeal barred by litigation policy threshold; penalty under Rule 173Q(1)(a) fell once the duty demand was set aside.

A Revenue appeal below the monetary threshold in the litigation policy was held not maintainable, so the appeal failed on maintainability. A penalty under Rule 173Q(1)(a) of the Central Excise Rules, 1944 could not survive once the underlying excise duty demand had been set aside by the Commissioner (Appeals), applying the Larger Bench view that a penalty linked to a dropped demand is unsustainable. The assessee therefore obtained relief against the penalty, and the matter was partially allowed in the assessee's favour.

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Issues: (i) Whether the Revenue's appeal was maintainable in view of the monetary limit under the litigation policy; (ii) whether penalty imposed under Rule 173Q(1)(a) of the Central Excise Rules, 1944 could survive after the demand was set aside.

Issue (i): Whether the Revenue's appeal was maintainable in view of the monetary limit under the litigation policy.

Analysis: The amount involved in the Revenue's appeal was below the prescribed threshold under Circular No. 390/Misc/116/2017-JC dated 11.07.2018. The appeal was therefore hit by the Government's litigation policy and was not maintainable.

Conclusion: The Revenue's appeal was dismissed.

Issue (ii): Whether penalty imposed under Rule 173Q(1)(a) of the Central Excise Rules, 1944 could survive after the demand was set aside.

Analysis: The penalty arose out of the excise duty demand, and the demand had already been set aside by the Commissioner (Appeals). Relying on the Larger Bench view that penalty under Rule 173Q(1)(a) cannot survive once the demand is dropped, the Tribunal held that the penalty was unsustainable.

Conclusion: The assessee's challenge to the penalty was allowed.

Final Conclusion: The Revenue's appeal failed on maintainability, while the assessee obtained relief against the penalty, resulting in a partial allowance of the matter in favour of the assessee.

Ratio Decidendi: A penalty linked to a duty demand cannot be sustained when the underlying demand has been set aside, and a Revenue appeal below the monetary limit prescribed by the litigation policy is not maintainable.

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