Capacity-based excise penalty cannot stand when short-paid duty is paid before final determination of liability.

Under a capacity-based excise scheme, penalty under Rule 96ZQ was found unsustainable where the duty liability was quantified only later and the assessee had already paid the short-paid duty before that determination. The applicable mechanism required debit and payment after the competent authority fixed annual capacity and the corresponding duty. Because the revised duty had been discharged before final determination, and the department's delay in fixing liability was material, there was no basis for penal action. The penalties were therefore set aside.

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Issues: Whether penalty under Rule 96ZQ was sustainable when the duty liability was finally determined only later and the assessee had already paid the short-paid duty before such determination.

Analysis: The assessee had filed the declaration for determination of annual capacity and continued to pay duty at the then-prevailing rate. The competent authority fixed the capacity and corresponding duty only in February 2001. The applicable scheme under Rule 96ZQ required debit and payment after determination under the relevant sub-rule, and the record showed that the assessee had discharged the revised duty before the final determination was made. In these circumstances, the delay in determination by the department and the prior payment by the assessee showed no basis for penal action.

Conclusion: Penalty was not leviable on the assessee under Rule 96ZQ.

Final Conclusion: The appeal succeeded and the penalties imposed on the assessee were set aside.

Ratio Decidendi: Where duty under a capacity-based excise scheme is finally determined only later, penalty cannot be sustained if the assessee has already paid the short-paid duty before such determination and the statutory duty to debit arises only after determination.

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