Omission of parent statute and lack of delegated power defeated Rule 96ZO(3) interest and penalty liabilities.

Omission of Section 3A of the Central Excise Act, 1944 without any saving clause meant pending proceedings under Rule 96ZO(3) could not continue because the subordinate scheme lost its statutory foundation. The interest and penalty components of Rule 96ZO(3) were also held beyond the delegated rule-making power, since substantive fiscal liabilities require express legislative authority and could not be created under the general power in Section 37 alone. On that reasoning, the demand, interest and penalty were set aside, and the assessee succeeded.

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Issues: (i) Whether proceedings initiated under Rule 96ZO(3) could continue after omission of Section 3A of the Central Excise Act, 1944 without any saving clause. (ii) Whether the provisions in Rule 96ZO(3) relating to interest and penalty were within the rule-making power under the Central Excise Act, 1944.

Issue (i): Whether proceedings initiated under Rule 96ZO(3) could continue after omission of Section 3A of the Central Excise Act, 1944 without any saving clause.

Analysis: Section 3A was the parent provision for the capacity-based levy and for Rule 96ZO. The omission of the parent provision, coupled with the absence of any saving clause in Section 121 of the Finance Act, 2001 or elsewhere, meant that pending proceedings based on that provision could not be carried forward. The continuing validity of the subordinate scheme depended on the subsistence of the source of power, and once that source was removed, the proceedings lost their legal foundation.

Conclusion: The pending proceedings under Rule 96ZO(3) could not be continued after omission of Section 3A, and the assessee succeeds on this issue.

Issue (ii): Whether the provisions in Rule 96ZO(3) relating to interest and penalty were within the rule-making power under the Central Excise Act, 1944.

Analysis: Interest and penalty are substantive fiscal liabilities and require clear legislative authority. The general rule-making power under Section 37 was held insufficient to sustain such liabilities in the absence of an express statutory basis. The Court found no enabling provision in the Act authorising the rule-making authority to create a liability for interest or penalty under Rule 96ZO(3), and therefore treated those parts of the rule as beyond delegation.

Conclusion: The interest and penalty provisions in Rule 96ZO(3) were ultra vires the delegated power and cannot be sustained, in favour of the assessee.

Final Conclusion: The demand, interest, and penalty were set aside, and both appeals were allowed.

Ratio Decidendi: Where the parent statutory provision is omitted without a saving clause, pending subordinate proceedings founded on that provision cannot survive, and delegated rules cannot impose substantive interest or penalty unless the enabling Act expressly authorises such liabilities.

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