Valid annual capacity determination is essential before compounded levy duty can be demanded under excise law.

Duty demand under the compounded levy scheme could not be sustained because annual capacity of production had not been determined by a valid quasi-judicial order of the Commissioner and served on the manufacturer. A communication issued by an Assistant Commissioner, even if referring to an alleged determination, did not satisfy Rule 4 of the Hot- Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 and could not support demand under Rule 96ZP of the Central Excise Rules, 1944 read with Section 3A of the Central Excise Act, 1944. The demand and appellate dismissal founded on such communications were therefore set aside, and the matter was remanded for fresh determination and consequential quantification in accordance with law and natural justice.

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Issues: Whether a demand of duty under the compounded levy scheme could be sustained when the annual capacity of production was not determined by a valid order of the Commissioner and was communicated only through letters issued by a subordinate officer.

Analysis: Rule 4 of the Hot- Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 required the Commissioner to determine annual capacity quasi-judicially and communicate that determination to the manufacturer. A communication issued by an Assistant Commissioner, even if it referred to an alleged determination by the Commissioner, did not satisfy this requirement and could not form a legally valid for duty demand under Rule 96ZP of the Central Excise Rules, 1944 read with Section 3A of the Central Excise Act, 1944. Since no valid order determining annual capacity had been served on the assessee, the demand and the appellate dismissal founded on that basis could not stand.

Conclusion: The demand of duty based on the impugned communications was not sustainable; the assessee succeeded and the matter was sent back for fresh determination of annual capacity and consequential duty quantification in accordance with law and natural justice.

Ratio Decidendi: A duty demand under the compounded levy scheme cannot rest on a subordinate officer's communication; it must be founded on a valid quasi-judicial determination of annual capacity by the Commissioner and proper service of that order on the manufacturer.

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