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Issues: (i) Whether Modvat credit that had lapsed on introduction of the compounded levy scheme could be used towards discharge of duty and, if duty collected from customers was not remitted to the exchequer, Section 11D was attracted. (ii) Whether interest was payable under Rule 96ZO for delayed discharge of the duty liability.
Issue (i): Whether Modvat credit that had lapsed on introduction of the compounded levy scheme could be used towards discharge of duty and, if duty collected from customers was not remitted to the exchequer, Section 11D was attracted.
Analysis: On introduction of the compounded levy regime, the unutilised credit stood lapsed. The payment of duty through such lapsed credit was therefore not a valid discharge of duty. The fact that duty had been recovered from customers but had not gone to the Government supported invocation of Section 11D.
Conclusion: The issue was decided against the assessee and Section 11D was held applicable.
Issue (ii): Whether interest was payable under Rule 96ZO for delayed discharge of the duty liability.
Analysis: The duty liability was not discharged on the due date and the statutory interest provision under Rule 96ZO applied. The extent of later payment or the actual production level did not displace the liability to pay interest for the delay.
Conclusion: The issue was decided against the assessee and interest under Rule 96ZO was held recoverable.
Final Conclusion: The appeal failed on both substantive issues and the order confirming the duty demand and interest was sustained.
Ratio Decidendi: Lapsed Modvat credit cannot validly satisfy duty liability under the compounded levy regime, and duty collected from buyers but not remitted to the exchequer attracts Section 11D; delay in paying the statutory duty also attracts interest under Rule 96ZO.
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