Penalty cannot survive when the underlying central excise duty demand is time-barred and unenforceable.

A penalty under Rule 173Q of the Central Excise Rules, 1944 cannot be sustained where the underlying duty demand under Section 11A of the Central Excises and Salt Act, 1944 is time-barred. The duty notice had already been held barred by limitation, so the substantive demand failed and the penalty had no independent foundation. In these circumstances, the penalty order was not legally maintainable and was set aside.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules, 1944 could be sustained when the underlying demand under Section 11A of the Central Excises and Salt Act, 1944 had been held time-barred.

Analysis: The demand notice for central excise duty was found to be barred by limitation, and the Tribunal had already accepted that the demand could not be sustained on that basis. Once the substantive demand failed, the foundation for imposing penalty also disappeared. The penalty could not survive independently when no enforceable demand notice remained to support it.

Conclusion: The penalty order was not sustainable and was liable to be set aside in favour of the petitioner.

Ratio Decidendi: A penalty under the Central Excise law cannot be sustained where the underlying duty demand itself is not legally maintainable.

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