Self-payment during pending capacity determination did not attract penalty where no rule barred voluntary duty payment and later correction.

Where the capacity-based excise scheme did not prohibit self-assessment and self-payment during pendency of annual capacity determination, the assessee's voluntary payment of duty and later correction of an arithmetical short payment did not amount to a contravention attracting penalty. The Tribunal found no prescribed procedure requiring the assessee to withhold payment until formal determination, and held that the short payment, once discovered and made good, did not justify penal action. Penalty was therefore unsustainable and was set aside.

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Issues: Whether penalty under Rule 96ZQ(5) was exigible for the alleged late payment of duty when the assessee had itself started paying duty pending determination of annual production capacity and later paid the short-paid amount on discovering an arithmetic error.

Analysis: The appeal concerned a textile processor governed by the capacity-based levy under Rule 96ZQ and the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1998. The assessee had applied for determination of capacity, commenced paying duty on its own before the Commissioner's determination, and thereafter made good the short payment when the error came to light. The Tribunal held that this conduct did not justify penalty. It further held that the relevant rules did not prescribe any procedure requiring an assessee, during the pendency of capacity determination, to abstain from self-assessment and self-payment of duty. In the absence of any such prohibition, the assessee could not be said to have short-paid duty in violation of a legal obligation.

Conclusion: Penalty was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The assessee was held not liable to penalty for the disputed short payment made during the pendency of capacity determination.

Ratio Decidendi: Where the governing capacity-based excise scheme does not prohibit self-payment pending official determination of capacity, voluntary payment and subsequent correction of an arithmetical short payment do not amount to a contravention warranting penalty.

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