Refund of penalty under Rule 173Q followed when the levy was inapplicable under the compound levy scheme.

Penalty deposited under Rule 173Q of the Central Excise Rules, 1944 was refundable because, on the governing compound levy scheme for hot re-rolled steel products, the penalty levy was inapplicable and could not be sustained. The refusal to refund was based on an incorrect assumption that no appeal had been filed against the original penalty orders, although later adjudication had already dropped the penalty proceedings. Binding Supreme Court precedent was applied, and the earlier order denying refund was set aside to that extent, with consequential refund relief granted to the assessee.

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Issues: Whether the penalty deposited under Rule 173Q of the Central Excise Rules, 1944 was refundable in the facts of the case.

Analysis: The liability to penalty was examined in the setting of the compound levy scheme applicable to hot re-rolled steel products. The controlling principle applied was that, where the scheme is a complete code in itself, penalty under Rule 173Q cannot be sustained in the manner adopted below. The earlier refusal to refund the penalty proceeded on an erroneous premise that no appeal had been filed against the original penalty orders, although the later adjudication had already dropped the penalty proceedings. The binding effect of the Supreme Court's ruling on subordinate authorities was also recognised.

Conclusion: The penalty of Rs. 25,000/- deposited under Rule 173Q was held refundable and the assessee succeeded on this issue.

Final Conclusion: The order denying refund of the penalty was set aside to that extent and the assessee was granted consequential refund relief.

Ratio Decidendi: Penalty under Rule 173Q cannot be retained where, on the governing scheme and binding precedent, the levy itself is inapplicable and the amount was deposited without authority of law.

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