Compounded levy duty default attracts penalty and interest, and later payment before notice does not wipe out liability.

Failure to pay duty on time under the compounded levy scheme attracted both penalty under Rule 96-ZP(3)(i)(ii) and interest. The duty liability under Section 3A of the Central Excise Act had to be discharged within the prescribed period, and default triggered the statutory consequences. Later payment of duty before issuance of the show cause notice did not erase the already incurred liability for delayed payment. Penalty was therefore upheld, though only the quantum was left to the competent authority's discretion, and interest remained payable in accordance with law.

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Issues: (i) whether penalty was leviable under Rule 96-ZP(3)(i)(ii) of the Central Excise Rules, 1944 for failure to pay duty under the compounded levy scheme; and (ii) whether interest was payable notwithstanding subsequent payment of duty before issuance of the show cause notice.

Issue (i): whether penalty was leviable under Rule 96-ZP(3)(i)(ii) of the Central Excise Rules, 1944 for failure to pay duty under the compounded levy scheme.

Analysis: The respondents were liable to pay duty under Section 3A of the Central Excise Act, 1944 under the compounded levy scheme and were required to discharge the monthly liability within the prescribed time. As the duty was not paid when due, the liability to penalty under Rule 96-ZP(3)(i)(ii) arose. The rule was treated as mandating penalty, though the competent authority retained discretion only as to the quantum.

Conclusion: Penalty was leviable, and the Commissioner (Appeals) was not justified in setting it aside in toto.

Issue (ii): whether interest was payable notwithstanding subsequent payment of duty before issuance of the show cause notice.

Analysis: The duty default gave rise to interest liability in accordance with law. Payment of the duty before the show cause notice did not extinguish the statutory liability already incurred for the delayed payment.

Conclusion: Interest was payable and could not be dropped on the ground of later payment of duty.

Final Conclusion: The order setting aside penalty and interest was modified, and the demand was sustained with a reduced penalty and direction to pay interest according to law.

Ratio Decidendi: Where duty payable under the compounded levy scheme is not paid within time, liability to penalty under Rule 96-ZP(3)(i)(ii) and to interest arises, and subsequent payment before show cause notice does not by itself erase that liability.

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