Penalty under Chapter X breach was held unsustainable where the excise rules already prescribed specific consequences.

Penalty under Rule 173Q of the Central Excise Rules, 1944 read with Section 11AC was examined in the context of alleged diversion of NGL obtained under Chapter X procedure. The Tribunal noted that the Commissioner had not recorded a proper basis for invoking the penalty provision, and that a major part of the duty demand had been dropped, warranting benefit of doubt on penalty. It also observed that Rule 196 already provided consequences for breach of Rule 192 through forfeiture of bond and confiscation, making a further penalty under Rule 173Q unnecessary on the facts discussed. The text further notes that the common penalty exceeded what Section 11AC contemplated.

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Issues: Whether the penalty imposed under Rule 173Q of the Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944 for alleged diversion of NGL obtained under Chapter X procedure was sustainable.

Analysis: The appeal was confined to the penalty issue. The demand proceedings arose from alleged use of NGL, obtained under concessional Chapter X procedure, for generation of electricity instead of the stated purpose. The Tribunal held that the Commissioner had not recorded a proper basis for invoking the penalty provision. It also held that where the major part of the duty demand had been dropped, benefit of doubt should have been extended on the question of penalty. The Tribunal further held that, for contravention of Rule 192, Rule 196 itself provided the relevant consequence by way of forfeiture of bond and confiscation, and therefore penalty under Rule 173Q was not warranted in the facts of the case. The Tribunal also noted that the common penalty imposed under Rule 173Q and Section 11AC exceeded what Section 11AC contemplated.

Conclusion: The penalty under Rule 173Q read with Section 11AC was unsustainable and was set aside.

Ratio Decidendi: Where the governing scheme already provides a specific consequence for breach of Chapter X conditions, a separate penalty under Rule 173Q cannot be imposed without a clear and reasoned finding justifying its necessity.

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