Compounded levy refund cannot be denied for missing prior approval where reduced capacity was later accepted retrospectively.

Under the compounded levy scheme, refund of duty on an unused fifth rolling machine was not barred merely because prior written approval for reduced installed capacity had not been obtained in advance. The assessee had informed the department before the change, paid duty under protest, and the Commissioner later granted retrospective permission for four machines. Because the relevant procedural non-compliance was capable of condonation and no excess operation of machinery was shown, the later approval was treated as curing the lapse. On these facts, denial of refund solely for want of prior approval was not justified, and refund on the fifth machine was allowable.

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Issues: Whether refund of duty paid on the fifth rolling machine could be denied solely for failure to obtain prior written approval before change in installed capacity, when the assessee had informed the department in advance and the Commissioner subsequently granted permission for four machines with retrospective effect.

Analysis: The assessee was operating under the compounded levy scheme under Rule 96ZA of the Central Excise Rules, 1944. Although Rule 96ZC(3) contemplated prior written approval before change in the number of mills, the assessee had intimated the Commissioner about the reduction in capacity and had paid duty under protest for the fifth machine, which was not used in production. The Commissioner later granted permission for special procedure for four machines from an earlier date. In these circumstances, the subsequent permission was treated as covering the procedural lapse, particularly because Rule 96ZG empowered the Commissioner to condone failure to comply with procedural conditions within the prescribed time. Since duty liability under the scheme was linked to the number of machines actually accepted and no excess operation of machines was shown, denial of refund was not justified.

Conclusion: The refund claim could not be rejected on the ground of absence of prior permission, and the assessee was entitled to refund of the duty paid on the fifth machine.

Ratio Decidendi: Where the department subsequently accepts the reduced installed capacity with retrospective effect and the relevant authority has power to condone procedural non-compliance, refund cannot be denied merely for want of prior approval if the excess machinery was not used and the duty was paid under protest.

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