Bona fide belief defeats excise penalty where limestone crushing was treated as non-manufacture before the Tribunal ruling.

Penalty under Rule 173Q of the Central Excise Rules was held unsustainable where the assessee had acted under a bona fide belief that crushing of limestone did not amount to manufacture under Section 2(f) of the Central Excises & Salt Act. The relevant periods preceded the Tribunal's earlier ruling on the issue, and the same circumstances supporting bona fide belief continued to apply. In the absence of any independent valid reason for penal action, the Commissioner (Appeals) had no basis to affirm the penalty. The penalty was set aside and the appeal succeeded.

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Issues: Whether penalty under Rule 173Q of the Central Excise Rules was sustainable when the appellants had acted under a bona fide belief that crushing of limestone did not amount to manufacture and the relevant period preceded the Tribunal's earlier ruling on the point.

Analysis: The appellants had consistently believed that crushing of limestone was not manufacture within the meaning of Section 2(f) of the Central Excises & Salt Act until the Tribunal later held otherwise. The periods involved in the present appeal were prior to that ruling, and the same circumstances that had earlier led to a finding of bona fide belief continued to exist. In these circumstances, there was no basis to sustain a penalty, and the order of the Commissioner (Appeals) also disclosed no independent valid reason for affirming it.

Conclusion: The penalty was unsustainable and was rightly set aside.

Final Conclusion: The appeal succeeded and the impugned penalty order was set aside.

Ratio Decidendi: Penalty cannot be sustained where the assessee's conduct is found to be covered by a bona fide belief and the record does not establish a sufficient basis for penal action under the relevant excise rules.

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