Compounded levy penalties: monthly default penalty falls when duty and interest are paid, but record-keeping breaches still attract penalty.

Under the compounded levy scheme, a monthly penalty under Rule 96ZQ(5) was held unsustainable where the duty and interest had been paid and no amount remained outstanding at the end of the month; the penalty was deleted because the statutory basis for default-linked punishment was absent. By contrast, separate penal action for breach of Rule 96ZQ(4) and Rule 96ZQ(6) was justified where the independent processor failed to maintain proper records and comply with mandatory return-filing requirements; the lesser penalty was therefore sustained.

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Issues: (i) Whether penalty imposed under Rule 96ZQ(5) of the Central Excise Rules was sustainable when the duty and interest had already been paid and nothing remained outstanding at the end of the month. (ii) Whether penalty imposed under Rule 96ZQ(4) and Rule 96ZQ(6) of the Central Excise Rules was justified for failure to maintain proper records and comply with procedural requirements.

Issue (i): Whether penalty imposed under Rule 96ZQ(5) of the Central Excise Rules was sustainable when the duty and interest had already been paid and nothing remained outstanding at the end of the month.

Analysis: Rule 96ZQ(5) fastens penalty where an independent processor fails to pay duty by the stipulated date and there remains an outstanding amount at the end of the relevant month. The duty in the present case was paid along with interest, and after that date no amount remained due under the compounded levy scheme. In the absence of any outstanding duty at the end of the month, the statutory basis for the monthly penalty was not attracted.

Conclusion: The penalty of Rs. 3 lakhs was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty imposed under Rule 96ZQ(4) and Rule 96ZQ(6) of the Central Excise Rules was justified for failure to maintain proper records and comply with procedural requirements.

Analysis: Rule 96ZQ(4) required the independent processor to maintain records and file the prescribed returns. The appellant had not maintained proper records, and the breach of these mandatory procedural obligations justified penal action. The order imposing the lesser penalty was therefore upheld.

Conclusion: The penalty of Rs. 10,000 was upheld against the assessee.

Final Conclusion: The adjudication sustained only the penalty linked to failure to comply with record-maintenance obligations, while deleting the penalty based on supposed outstanding duty liability.

Ratio Decidendi: A monthly penalty under the compounded levy provisions cannot be sustained once the duty and interest have been paid and no amount remains outstanding at the end of the month, but separate penalty may still be imposed for breach of mandatory record-keeping and return-filing requirements.

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