Prospective application of capacity changes under the Compound Levy Scheme barred retrospective duty, interest and penalty demands.

A change in the capacity-determination parameter under the Compound Levy Scheme could operate only prospectively, so past duty demand based on the later measurement was not sustainable. The record showed no wilful suppression, mala fides, or other basis to invoke the extended demand period or penalties, and the scheme was treated as a self-contained code that excluded general interest and penalty provisions on these facts. The retrospective demand, interest and penalty were therefore rejected.

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Issues: Whether a change in the capacity-determination parameter under the Compound Levy Scheme could be applied retrospectively so as to sustain past duty demand, interest and penalties, and whether the extended demand and penal provisions were invocable in the absence of evidence of wilful suppression or mala fide conduct.

Analysis: The unit had earlier been measured by departmental officers and the Annual Capacity of Production was fixed on that basis. In later visits, the officers found a different value for the parameter, but the order did not deal with the assessee's explanation that different instruments were used on different occasions. On the record, no mala fide could be attributed to the assessee. Following the earlier Tribunal view relied upon, a change in the parameter could operate only prospectively and not for past periods. The decision also applied the principle that the Compound Levy Scheme is a self-contained code, so the general provisions for interest and penalties under the Central Excise Act and the Rules were not attracted in the facts of the case.

Conclusion: The retrospective duty demand was not sustainable, and the penalty and interest provisions could not be invoked against the assessee.

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