Permanent factory closure ends production-capacity duty liability for the post-shutdown period under a capacity-based levy.

A factory permanently closed from 1 August 1998, with power disconnected on 11 July 1999, fell outside the production capacity based duty levy for the period after closure because no manufacturing activity continued during the material time. On those facts, the duty demand for the post-closure period was not sustainable.

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Issues: Whether an assessee who had permanently closed the factory and discontinued power connection was liable to pay duty under the production capacity based scheme for the period after closure.

Analysis: The factory had been closed permanently from 1 August 1998 and the power connection was disconnected on 11 July 1999. The relevant period was after closure, and the unit remained under closure during the material time. On these facts, there was no manufacturing activity, and the duty liability under the production capacity based levy could not survive for the period when the factory was not operating.

Conclusion: The duty demand for the period subsequent to permanent closure was not sustainable, and the issue was decided in favour of the assessee.

Ratio Decidendi: Where a factory under a production capacity based duty regime is permanently closed and manufacturing activity ceases, no duty is payable for the period after closure.

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