Consequential penalty under Central Excise law falls away once the underlying duty demand is set aside and exemption is accepted.

Rule 25 penalties imposed on principal suppliers could not be sustained where they were wholly consequential to a duty demand against the job worker. Once the Tribunal set aside that underlying duty demand in the connected matter, the foundation for the penalties disappeared. The exemption under Notification No. 67/95-CE had already been considered and applied in the connected proceeding, so the earlier Revenue reliance was not followed. The penalties were therefore annulled as dependent on a deleted demand.

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Issues: Whether penalties imposed under Rule 25 of the Central Excise Rules, 2002 on the principal suppliers could survive after the demand of duty against the job worker had been set aside and the exemption under Notification No. 67/95-CE had been extended in the connected matter.

Analysis: The penalty was held to be consequential to the duty demand confirmed against the job worker. Since the Tribunal had already set aside that demand in the connected appeal arising from the same order in original, the foundation for the penalty disappeared. The earlier decision relied on by the Revenue was not followed because the exemption under Notification No. 67/95-CE had been specifically considered and applied in the connected matter, and that decision was treated as prevailing on the issue.

Conclusion: The penalties under Rule 25 could not be sustained and were set aside.

Final Conclusion: The appeals succeeded and the penalty demands against the appellants were annulled as consequential to the deleted duty demand.

Ratio Decidendi: A penalty that is wholly consequential to a duty demand cannot survive once the underlying demand is set aside, particularly where the exemption applicable to the goods has been accepted in the connected proceeding.

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