Statutory penalty for duty default restored where abatement claim and retrospective challenge did not displace existing liability.
A pending abatement claim for an earlier closure period did not extinguish penalty exposure for a separate later period of short payment of duty. After the Finance Act, 2001, the validation and saving provisions were held not to remove the power to impose penalty for defaults committed when the penal provision was already in force, because they did not retrospectively create a new offence. Once default in payment of duty was established, the governing rule required penalty equal to the duty amount, and no discretion existed to substitute a nominal sum. The appeal therefore succeeded, the reduced penalty was set aside, and the statutory penalty was restored.
Issues: (i) Whether the pending abatement claim could prevent or negate the penalty for short payment of duty for the later default period. (ii) Whether, after the Finance Act, 2001, the authority lacked jurisdiction to impose penalty under the erstwhile compounded levy provisions. (iii) Whether the penalty could be reduced from the statutory measure to a nominal amount despite the finding of default.
Issue (i): Whether the pending abatement claim could prevent or negate the penalty for short payment of duty for the later default period.
Analysis: The abatement claim related to an earlier closure period, while the default in duty payment related to a subsequent period. The circular governing abatement applied only where the claimed closure period coincided with the period for which duty default was alleged. A pending or later-allowed abatement for a different period did not extinguish liability for the separate period of short payment.
Conclusion: The abatement claim did not bar penalty for the later default period and the finding was against the assessee.
Issue (ii): Whether, after the Finance Act, 2001, the authority lacked jurisdiction to impose penalty under the erstwhile compounded levy provisions.
Analysis: The validation provision preserved actions taken under the earlier regime, while the explanation protected a person from being punished retrospectively for an act or omission that was not punishable as an offence when the provision came into force. The Court distinguished between retrospective creation of an offence and enforcement of an existing statutory penalty for default in payment of duty. It held that the explanation did not take away the power to impose penalty for defaults committed when the penal provision was already in force.
Conclusion: The authority retained jurisdiction to impose penalty and the contention was rejected.
Issue (iii): Whether the penalty could be reduced from the statutory measure to a nominal amount despite the finding of default.
Analysis: Once default in payment of duty was found, the penalty had to accord with the governing provision, which required penalty equal to the duty amount. The Commissioner (Appeals) had no discretion to substitute a token penalty where the statutory default amount was established.
Conclusion: The reduction of penalty to a nominal amount was unsustainable and the penalty was required to be restored to the defaulted amount, against the assessee.
Final Conclusion: The appeal succeeded, the reduced penalty was set aside, and the statutory penalty amount was restored while the cross-objections failed.
Ratio Decidendi: A statutory validation clause does not retrospectively create an offence, but it does not nullify an existing power to impose penalty for duty default committed when the penal provision was in force; once statutory default is established, the prescribed penalty cannot be reduced to a nominal amount contrary to the governing rule.