Retrospective penalty barred where Modvat credit conduct predated the amendment introducing penal liability.

Penalty under Rule 173Q(1)(bbb) of the Central Excise Rules, 1944 could not be imposed for passing on Modvat credit on additional customs duty when the conduct occurred in 1997 and 1998, because penal liability for that conduct arose only after the amendment dated 14.07.1999. The court noted that the later circular also reflected that no such penalty provision existed for the earlier period. As the transactions pre-dated the amendment, the amended penal provision could not be applied retrospectively, and penalty was not leviable for the pre-amendment period.

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Issues: Whether penalty could be sustained under Rule 173Q(1)(bbb) of the Central Excise Rules, 1944 for conduct that occurred before the amendment introducing penal liability.

Analysis: The disputed transactions of passing on Modvat credit on additional customs duty took place in 1997 and 1998. During that period, such conduct was not liable to penalty under the applicable rules. The penal liability was introduced only by amendment dated 14.07.1999, and the circular issued thereafter also acknowledged that penal provisions for such conduct did not exist before that amendment. In these circumstances, the later amendment could not be relied upon to impose penalty for prior transactions.

Conclusion: Penalty was not leviable for the pre-amendment period, and the revenue appeal failed.

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