Derivative penalty and confiscation cannot survive when the principal duty demand is adjusted through Modvat credit.

Where the duty demand against the principal noticee was adjusted through available Modvat credit and no penalty was imposed on that noticee, the basis for alleging abetment against the appellant ceased to survive. On that footing, confiscation of goods in the appellant's possession, premised on alleged clandestine clearance without duty payment, was also unsustainable. The derivative penalty and confiscation were therefore set aside because they depended on a demand and culpability against the principal noticee that had not been maintained.

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Issues: Whether the penalty and confiscation imposed on the appellant could be sustained when the demand against the principal noticee was adjusted against available Modvat credit and no penalty was imposed on the principal noticee.

Analysis: The duty demand against the principal noticee had been adjusted against available Modvat credit, and on that basis no penalty was imposed on the principal noticee. In such circumstances, the basis for alleging abetment against the appellant no longer survived, and the confiscation of goods in the appellant's possession, founded on the alleged clandestine clearance without duty payment, could not be sustained.

Conclusion: The penalty and confiscation imposed on the appellant were unsustainable and were set aside.

Ratio Decidendi: Where the duty demand against the principal noticee stands adjusted through Modvat credit and no penalty is imposed on the principal noticee, derivative penalty and confiscation against an alleged abettor cannot be sustained.

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