Compounded levy abatement applies only after formal approval; pending closure claims cannot justify withholding duty payment.

Under the compounded levy regime, abatement for factory closure becomes effective only when the prescribed conditions are satisfied and the competent authority formally allows it. A manufacturer cannot unilaterally withhold or reduce duty on the basis of a pending abatement claim; duty remains payable in full until abatement is granted, with any excess recoverable later by refund. Non-payment in the required manner also attracts penalty, though the amount may be moderated on the facts. The article states that duty liability was sustained and the penalty was reduced.

---

---

Issues: (i) Whether the assessee could withhold or reduce payment of duty on the basis of a pending claim for abatement on account of closure of the factory under the compounded levy provisions; (ii) Whether penalty was sustainable and, if so, to what extent.

Issue (i): Whether the assessee could withhold or reduce payment of duty on the basis of a pending claim for abatement on account of closure of the factory under the compounded levy provisions.

Analysis: Abatement under the compounded levy scheme was available only where the manufacturer satisfied the prescribed conditions and obtained an order from the Commissioner. The obligation to pay duty under the scheme continued until abatement was formally allowed. The assessee could not unilaterally deduct the alleged abatement from the duty payable. If abatement was subsequently granted, the proper course was to seek refund of the excess duty paid.

Conclusion: The assessee was liable to discharge the full duty determined under Section 3A read with Rule 96ZP, and the pending abatement claim did not justify non-payment or part-payment.

Issue (ii): Whether penalty was sustainable and, if so, to what extent.

Analysis: Since the assessee had not discharged the duty liability in the manner required by the scheme, penalty was attracted. However, in view of the facts and circumstances, the quantum of penalty required moderation.

Conclusion: Penalty was upheld in principle but reduced to Rs. 2 lakhs.

Final Conclusion: The duty demand was sustained, the assessee's challenge to liability failed, and only the penalty was interfered with to the limited extent of reduction.

Ratio Decidendi: Under the compounded levy regime, abatement for factory closure operates only after satisfaction of prescribed conditions and formal allowance by the competent authority; the assessee cannot self-adjust or withhold duty on the basis of a pending abatement claim.

---