Compounded levy scheme accounting discrepancies attracted only the lesser penalty where no deliberate duty evasion was found.

Under the compounded levy scheme, duty is linked to production capacity rather than actual production. Where the record showed no finding of deliberate evasion or intentional insertion of wrong particulars to facilitate evasion, the discrepancy was treated as a failure to maintain accounts correctly. On that basis, the harsher penalty under Rule 209 of the Central Excise Rules, 1944 was not justified; the conduct fell within Rule 226 instead. The penalty was therefore reduced to the maximum permissible under Rule 226.

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Issues: Whether the penalty imposed under Rule 209 of the Central Excise Rules, 1944 was sustainable where the alleged discrepancies arose in the context of a compounded levy scheme and there was no finding of deliberate evasion of duty.

Analysis: The liability was being discharged under the compounded levy scheme under Section 3A of the Central Excise Act, 1944, under which duty is linked to production capacity rather than actual production. The record disclosed no finding that the assessee had evaded duty or had deliberately entered wrong particulars in the accounts to facilitate evasion. In those circumstances, the discrepancy was treated as a failure to maintain accounts correctly, attracting Rule 226 of the Central Excise Rules, 1944 rather than the harsher penal provision relied on by the department. The maximum penalty under Rule 226 was only Rs. 2,000.

Conclusion: The penalty under Rule 209 was not sustained in the amount imposed and was reduced to Rs. 2,000, which was the maximum permissible under Rule 226.

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