Compounded levy liability under Rule 96ZQ depends on final production capacity determination; provisional fixation cannot trigger interest or penalty.

Liability under the compounded levy scheme under Rule 96ZQ arises only after the annual capacity of production is finally determined by the competent authority. Where capacity is fixed merely on a provisional basis, the statutory precondition for invoking delayed-payment consequences is not met, and interest and penalty cannot be sustained. On the facts, no final determination had been made, so the demand for interest and penalty was set aside and the Revenue's challenge failed.

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Issues: Whether demand of duty, interest and penalty under Rule 96ZQ could be sustained when the annual capacity of production had not been finally determined.

Analysis: Liability to pay duty under the compounded levy scheme arose only after the annual capacity of production was finally determined. On the facts, the capacity had been fixed only provisionally, and the statutory precondition for invoking the consequence under Rule 96ZQ(5) was therefore not satisfied. In the absence of final determination by the competent authority, the assessee could not be made liable for the delayed payment consequences, including interest and penalty.

Conclusion: The demand of interest and penalty was not sustainable and the appellate order setting aside the adjudication was upheld.

Final Conclusion: The Revenue's challenge failed, and the assessee retained relief against the duty-related demands and penalty founded on provisional capacity determination.

Ratio Decidendi: Under Rule 96ZQ, penal and interest consequences for non-payment arise only after final determination of annual capacity of production by the competent authority.

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