Compounded levy duty default attracts penalty, but the quantum may be reduced on the facts and circumstances.

A subsisting annual capacity determination order fixing duty liability under the compounded levy scheme must be complied with unless set aside by the competent appellate forum, and a pending dispute about furnace type or a later settlement does not excuse non-payment on the due dates. Default in discharging the duty liability attracts penalty under Rule 96ZP of the Central Excise Rules. The quantum of penalty, however, may be moderated on the facts, and the full amount equal to duty was reduced here to a consolidated penalty of Rs. 1 lakh.

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Issues: Whether penalty was leviable for failure to discharge the duty liability fixed under the annual capacity determination order, and whether the penalty could be sustained at the full amount of duty.

Analysis: Once the competent authority determines the annual capacity of production and fixes the duty liability, the assessee is bound to comply with that order unless it is set aside by the appropriate appellate forum. A pending dispute regarding the furnace type or a later settlement does not justify non-payment of duty on the due dates. Default in discharging duty liability under the scheme attracts penalty under Rule 96ZP of the Central Excise Rules. At the same time, the facts did not warrant a penalty equal to the duty amount.

Conclusion: Penalty was rightly imposable, but the full equal penalty was reduced and a consolidated penalty of Rs. 1 lakh was sustained.

Ratio Decidendi: An assessee must comply with a subsisting duty determination order until it is set aside, and failure to pay duty on the prescribed dates under the compounded levy scheme justifies penalty, though the quantum may be moderated on the facts.

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