Penalty enhancement for duty default under Rule 8(3A) was set aside; Rule 25 penalty was sustained as adequate.

Default in payment of duty under Rule 8(3A) attracted the consequences prescribed by the governing rule, and the assessee had already discharged the duty and reversed the credit entry as directed. The original adjudication imposed a penalty of Rs. 15,000 under Rule 25, which was considered adequate on the facts. The appellate authority was not justified in enhancing the penalty to 100% under Section 11AC in substitution of the penalty already imposed under Rule 25. The enhancement was set aside, while the original duty-payment and interest consequences were left undisturbed.

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Issues: Whether, on default in payment of duty under Rule 8(3A), the penalty could be enhanced under Section 11AC instead of sustaining the penalty already imposed under Rule 25.

Analysis: The duty had already been discharged and the assessee had reversed the credit entry as directed. The original adjudication had imposed a penalty of Rs. 15,000 under Rule 25 of the Central Excise Rules, 2002. In the facts of default under Rule 8(3A) of the Cenvat Credit Rules, the consequences and penalties prescribed under the relevant rule were attracted. The Tribunal held that the appellate authority was not justified in enhancing the penalty to 100% under Section 11AC when the original penalty under Rule 25 was adequate in the circumstances.

Conclusion: The enhancement of penalty under Section 11AC was set aside and the penalty of Rs. 15,000 under Rule 25 was sustained.

Final Conclusion: The appeal succeeded only to the extent of penalty, while the original adjudicatory consequences on duty payment and interest were not disturbed.

Ratio Decidendi: Where default in duty payment attracts the specific consequences of the governing rule, penalty must be confined to that rule and cannot be mechanically enhanced under Section 11AC in substitution of the penalty already imposed under Rule 25.

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