Unsustainable penalty and interest where levy rests on a capacity fixation already set aside

Consequential penalty and interest could not be sustained where the annual production capacity fixation on which they were based had already been set aside by the Tribunal. The order nevertheless proceeded on the discarded capacity determination and on asserted liability under Rule 96ZO, but the underlying basis for the levy had been repeatedly interfered with and remitted in prior proceedings. Once that fixation was held unsustainable, the connected demand also failed. Penalty and interest were therefore held not sustainable against the assessee.

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Issues: Whether penalty and interest could be sustained on the basis of an initial fixation of annual production capacity which had already been set aside by the Tribunal.

Analysis: The annual capacity determination made by the Commissioner had been repeatedly interfered with and remitted by the Tribunal, and the impugned order nonetheless proceeded to levy penalty and interest on the basis of the earlier fixation. Once that fixation had been held unsustainable, the consequential demand could not be maintained on the strength of the discarded determination. The order also proceeded on a claimed liability under Rule 96ZO and on a belated plea for redetermination under Section 3A(4), but the underlying basis for the levy remained the initial fixation already rejected in prior proceedings.

Conclusion: Penalty and interest were not sustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Consequential penalty and interest cannot be levied on the basis of a capacity determination that has already been set aside as unsustainable.

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