Rule 173-Q penalty survives excise procedural contraventions even when duty demand is dropped on limitation grounds.

Penalty under Rule 173-Q of the Central Excise Rules remained sustainable where the assessee had contravened Rule 174 by failing to file the required declaration and had not complied with Chapter IX, even though the duty demand was dropped on limitation grounds. The dropping of duty did not erase liability for these procedural violations, and Rule 173-Q was treated as applicable to removal of excisable goods in contravention of the rules. The penalty was nevertheless moderated because the original amount was considered excessive on the facts, so the quantum was reduced while the liability to penalty was maintained.

---

---

Issues: (i) Whether penalty under Rule 173-Q of the Central Excise Rules was sustainable after the duty demand had been dropped and the assessee had been found to have violated Rule 174 and the requirements of Chapter IX; (ii) Whether the penalty amount required reduction.

Issue (i): Whether penalty under Rule 173-Q of the Central Excise Rules was sustainable after the duty demand had been dropped and the assessee had been found to have violated Rule 174 and the requirements of Chapter IX.

Analysis: The duty demand had been dropped on limitation grounds, but the findings of contravention of Rule 174 for non-filing of the requisite declaration and non-compliance with Chapter IX remained undisturbed. Rule 173-Q was treated as applicable where excisable goods are removed in contravention of the rules, and the penalty provision was applied as mandatory rather than discretionary. The dropping of duty demand on technical grounds did not extinguish liability for such procedural contraventions.

Conclusion: Penalty under Rule 173-Q was valid and sustainable.

Issue (ii): Whether the penalty amount required reduction.

Analysis: Although the imposition of penalty was upheld, the amount was assessed as excessive in light of the facts and circumstances of the case. The penalty was therefore moderated to a lesser amount.

Conclusion: The penalty amount was reduced.

Final Conclusion: The appeal succeeded only to the extent of reduction in penalty, while the finding sustaining liability to penalty was maintained.

Ratio Decidendi: A penalty under Rule 173-Q may be imposed for contravention of mandatory excise procedure even if the duty demand is dropped on limitation or other technical grounds, and the quantum of penalty can be interfered with only on grounds of excessiveness.

---