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Issues: (i) Whether duty liability under the compounded levy scheme could be reduced before the stenter was actually dismantled and without approval of the Commissioner. (ii) Whether the penalty imposed for short payment of duty was excessive and required reduction.
Issue (i): Whether duty liability under the compounded levy scheme could be reduced before the stenter was actually dismantled and without approval of the Commissioner.
Analysis: The duty was fixed under the special annual capacity determination scheme for hot air stenters. Under that scheme, any change affecting installed machinery and annual capacity had to be intimated to the Commissioner and approved in writing before duty could be re-determined. Abatement was also available only in the manner contemplated by the rules, and not for unilateral reduction of duty on the basis of partial closure or internal chamber changes. The stenter in question was found to have been dismantled only on 9-3-1999, and the requisite report for reduction of duty liability was available only from that date.
Conclusion: The reduced duty liability was rightly allowed only from 9-3-1999, and the demand for the earlier period was sustained.
Issue (ii): Whether the penalty imposed for short payment of duty was excessive and required reduction.
Analysis: The short payment of duty and liability to interest were upheld, but the quantum of penalty was examined separately on the facts and circumstances of the case. The penalty imposed at the full amount of duty short paid was considered disproportionate in the circumstances.
Conclusion: The penalty was reduced from Rs. 9,08,305/- to Rs. 2,00,000/-.
Final Conclusion: The duty demand and interest liability were sustained, but the penalty was substantially reduced, resulting in only partial relief to the assessee.
Ratio Decidendi: Under a self-contained compounded levy scheme, duty liability can be re-determined only in accordance with the prescribed procedure and competent approval, and abatement cannot be claimed by unilateral reduction before the statutory conditions are satisfied.
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