Annual capacity verification sustains compounded levy duty, while confiscation and penalty are unsustainable under the statutory scheme.

Annual capacity of an induction furnace was upheld at 8 MT where joint verification, crucible measurements, contemporaneous production records and power-consumption data supported the Department's determination, and the assessee's later objection to a 4.5 MT capacity was rejected. The duty demand was held not barred by limitation because the assessment had been provisionally approved on the assessee's declaration and was later finalised by completing the assessment process; the absence of a bond did not negate the provisional character. Confiscation of seized goods and penalty were set aside because duty under the compounded levy scheme was payable on the determined capacity, making those ancillary consequences unwarranted.

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Issues: (i) whether the annual capacity of production of the induction furnace was rightly determined at 8 MT instead of 4.5 MT; (ii) whether the demand of duty was barred by limitation on the ground that the assessment was not provisional; and (iii) whether confiscation of the seized goods and penalty on the assessee were sustainable.

Issue (i): whether the annual capacity of production of the induction furnace was rightly determined at 8 MT instead of 4.5 MT

Analysis: The capacity determined by the Department on joint verification was supported by the measurement of the crucible and by contemporaneous records showing a capacity of 7.97 MT, along with a single-heat production of 5.86 MT and other surrounding evidence such as power consumption and production entries. The assessee's claim of reduction to 4.5 MT was not accepted because the contemporaneous verification report was signed without reservation, the later objection was delayed, and the supporting material did not displace the Department's evidence.

Conclusion: The determination of annual capacity at 8 MT was upheld against the assessee.

Issue (ii): whether the demand of duty was barred by limitation on the ground that the assessment was not provisional

Analysis: The annual capacity had been initially approved provisionally on the assessee's declaration, and the final order merely completed the process by determining the capacity finally and raising the consequential demand. The absence of a bond did not alter the provisional character of the assessment, and the scheme and departmental circulars did not support the plea that no provisional determination was permissible.

Conclusion: The duty demand was held to be within time and not barred by limitation.

Issue (iii): whether confiscation of the seized goods and penalty on the assessee were sustainable

Analysis: Duty under the compounded levy regime is payable on the basis of annual capacity as determined, and once the duty liability stood worked out on that basis, confiscation of the seized goods was not warranted. For the same reason, the imposition of penalty was also found unjustified.

Conclusion: Confiscation and penalty were set aside in favour of the assessee.

Final Conclusion: The assessment on annual capacity and the resulting duty demand were sustained, but the ancillary consequences of confiscation and penalty were removed, resulting in only partial relief to the assessee.

Ratio Decidendi: Where annual capacity of production has been provisionally approved and the Department later proves a higher capacity on contemporaneous verification, the final assessment may be completed on that basis without a separate bond, but confiscation and penalty are not justified where duty is chargeable on the determined capacity under the statutory scheme.

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