Penalty cannot survive without short-levy or statutory breach when the duty demand itself is dropped.

Penalty is unsustainable where the duty demand has been dropped for no short-levy and no contravention of the Act or Rules is found. The analysis states that, once the demand itself was not pursued and no statutory or procedural breach was recorded, absence of prior departmental permission alone could not provide an independent legal basis for penalty. The penalty was therefore set aside in favour of the assessee.

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Issues: Whether penalty could be sustained when the demand of duty had been dropped for no short-levy and no contravention of the Act or the Rules had been found.

Analysis: The order dropping the duty demand proceeded on a finding that there was no short-levy. The only basis stated for penalty was the absence of prior departmental permission, though no breach of any statutory provision or rule was recorded. Once the demand itself was not pursued and no procedural contravention was found, there remained no foundation for imposing penalty.

Conclusion: The penalty was not sustainable and was set aside in favour of the assessee.

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