Ultra vires demand fails, but procedural penalties survive for delayed returns and deliberate misdeclaration under Central Excise rules.

A demand of duty and equal penalty based on Rule 8(3A) of the Central Excise Rules, 2002 could not survive once that rule had been declared ultra vires, though interest for delayed payment remained unaffected. Penalty under Rule 27 was sustained because the ER-1 returns were filed after the due dates, and the general penalty provision applied to the admitted procedural default. Penalty under Rule 26 was also sustained against the authorised signatory, as the record showed conscious misdeclaration of duty-payment particulars and deliberate concealment of the non-payment. The stated principle is that an unenforceable statutory foundation cannot support a demand or consequential penalty, but separate penalties for proven compliance defaults or misstatement remain valid.

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Issues: (i) Whether the demand of duty and equal penalty could be sustained on the basis of Rule 8(3A) of the Central Excise Rules, 2002 after the rule had been held ultra vires; (ii) Whether penalty under Rule 27 of the Central Excise Rules, 2002 was sustainable for delayed filing of ER-1 returns; (iii) Whether penalty under Rule 26 of the Central Excise Rules, 2002 was sustainable against the authorised signatory for misdeclaration of duty payment particulars.

Issue (i): Whether the demand of duty and equal penalty could be sustained on the basis of Rule 8(3A) of the Central Excise Rules, 2002 after the rule had been held ultra vires.

Analysis: The demand was founded on the restriction contained in Rule 8(3A), under which a defaulting manufacturer was required to pay duty on a consignment basis without utilizing Cenvat credit. The rule had already been declared ultra vires by the Gujarat High Court, and the challenge by the Union of India had been dismissed by the Supreme Court. Once the very foundation of the demand had ceased to survive, the consequential equal penalty under Section 11AC also could not stand. The liability to interest for delayed payment of duty, if otherwise payable, remained unaffected.

Conclusion: The duty demand and equal penalty were set aside, and the assessee succeeded on this issue.

Issue (ii): Whether penalty under Rule 27 of the Central Excise Rules, 2002 was sustainable for delayed filing of ER-1 returns.

Analysis: The record showed that the ER-1 returns for March 2009 and April 2009 were filed after the due dates. Rule 27 provides a general penalty for breach of the rules where no other specific penalty is provided. On the admitted dates of filing, the delayed compliance was established and the general penalty was found to be properly invoked.

Conclusion: The penalty under Rule 27 was upheld and this issue was decided against the assessee.

Issue (iii): Whether penalty under Rule 26 of the Central Excise Rules, 2002 was sustainable against the authorised signatory for misdeclaration of duty payment particulars.

Analysis: The authorised signatory had shown the February 2009 duty as fully discharged in the return even though part of the amount had not been paid on the stated date. The adjudicating record, including the statement of the authorised signatory, showed conscious knowledge of the default and a deliberate misstatement intended to mislead the department and continue utilization of the Cenvat account. Such active participation in the misdeclaration attracted personal penalty.

Conclusion: The penalty under Rule 26 was upheld and this issue was decided against the appellant.

Final Conclusion: The demand and equal penalty based on Rule 8(3A) were annulled, but the penalties for delayed return filing and for the authorised signatory's misdeclaration were sustained.

Ratio Decidendi: When the statutory foundation of a demand is declared ultra vires, the demand and its consequential penalty cannot survive; however, independent penalties for separately established procedural default or deliberate misstatement remain sustainable.

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