Deemed credit duty payment cannot be added to assessable value; Section 11D and penalty were unsustainable.

Duty discharged through a deemed credit account under Notification No. 29/96-C.E. (N.T.) was treated as duty actually paid on processed fabrics, with no material distinction from payment through PLA. The effective duty paid was deductible under Section 4(4)(d)(ii) of the Central Excise Act, 1944, so the amount shown as duty discharged could not be added to assessable value as additional consideration. On that basis, Section 11D had no application because the amount represented duty levied and discharged, and the consequential penalty was also unsustainable. The additions to assessable value, the Section 11D demand, and the penalty were set aside.

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Issues: Whether the portion of duty discharged from the deemed credit account under Notification No. 29/96-C.E. (N.T.) was an additional consideration liable to be added to the assessable value of processed fabrics, and whether Section 11D of the Central Excise Act, 1944 could be invoked on that basis.

Analysis: Duty discharged through the deemed credit account and duty discharged through PLA both constituted discharge of duty on the processed fabrics. The effective duty paid on the goods was deductible under Section 4(4)(d)(ii) of the Central Excise Act, 1944, and no distinction could be drawn between payment through PLA and payment through the deemed credit mechanism. The notification did not reduce the effective rate of duty, and the amount shown as duty discharged could not be treated as an additional consideration for valuation. Since the amount represented duty actually levied and discharged, there was also no basis for applying Section 11D. The consequential penalty was therefore not sustainable.

Conclusion: The additions to assessable value, the demand founded on Section 11D, and the penalty were not sustainable and were set aside in favour of the assessee.

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