Retrospective penalty and item-wise tariff classification defects led to penalty relief and remand for fresh adjudication.

Section 11AC penalty could not be sustained for a period before the provision came into force, as a penal provision cannot operate retrospectively absent clear legislative intent, so the penalty was set aside. The demand proceedings were also found procedurally deficient because the notice and adjudication order failed to specify the tariff classification of each item item-wise, depriving the assessee of a fair opportunity to meet the case on exempt or non-excisable items, so the matter was remanded for de novo adjudication.

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Issues: (i) whether penalty imposed under Section 11AC of the Central Excise Act could be sustained for a period prior to its coming into force; (ii) whether the demand proceedings were vitiated by failure to specify, item-wise, the tariff classification and consequent prejudice to the assessee, warranting remand.

Issue (i): Whether penalty imposed under Section 11AC of the Central Excise Act could be sustained for a period prior to its coming into force.

Analysis: The penalty provision was invoked for a period when the cause of action had already arisen before the provision became operative. A penal provision cannot be applied retrospectively in the absence of clear legislative intent, and the record showed no dispute that the relevant period preceded the commencement of Section 11AC.

Conclusion: The penalty under Section 11AC was not sustainable and could not be invoked against the assessee for the period in question.

Issue (ii): Whether the demand proceedings were vitiated by failure to specify, item-wise, the tariff classification and consequent prejudice to the assessee, warranting remand.

Analysis: The show cause notice and the adjudication order did not set out the classification of each item with sufficient specificity, though the dispute turned on whether particular items fell under different tariff headings and whether some items were eligible for exemption or not excisable at all. In such circumstances, the assessee was deprived of a fair opportunity to answer the demand item-wise, which amounted to procedural prejudice and made the adjudication incomplete.

Conclusion: The matter required de novo adjudication and the impugned order was set aside with a direction for remand.

Final Conclusion: The assessee obtained relief against the statutory penalty and the adjudication was reopened for fresh decision on the duty demand, subject to a partial pre-deposit and interim protection.

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