Reference lies only on a substantial question of law when penalty cancellation rests on unchallenged factual findings.

A reference under Section 35H(1) of the Central Excise Act, 1944 lies only where a substantial question of law arises from the appellate order. The Tribunal had upheld cancellation of penalty under Rule 173Q of the Central Excise Rules, 1944 on the factual basis that the assessee's case was pending before the BIFR and the default period fell within that pendency. As no factual infirmity in those findings was shown, no substantial question of law arose and the Revenue's reference petition was rejected.

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Issues: Whether any substantial question of law arose from the Tribunal's order declining to refer the questions proposed by the Revenue and upholding the cancellation of penalty under Rule 173Q of the Central Excise Rules, 1944.

Analysis: The reference jurisdiction under Section 35H(1) of the Central Excise Act, 1944 is attracted only when a substantial question of law arises from the appellate order. The Tribunal had affirmed the cancellation of penalty on the factual basis that the assessee's case was pending before the BIFR and the period of default fell within that pendency. No factual infirmity in those findings was shown.

Conclusion: No substantial question of law arose for consideration, and the Revenue's petition for reference was rejected.

Ratio Decidendi: A reference under Section 35H(1) of the Central Excise Act, 1944 cannot be directed where the Tribunal's conclusion rests on unchallenged factual findings and no substantial question of law is demonstrated.

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