Special duty regime and factory closure: no abatement for temporary shutdown, but no continuing liability after permanent cessation.
Under Rule 96ZP(3), abatement was not available for intermittent temporary closure of the factory, as the special duty regime did not contemplate relief for such short closures. The duty disallowance for those closure periods was therefore maintained. However, where the factory had stopped production permanently, had not resumed operations after disconnection of electricity, and was later sold, the special duty mechanism could not sustain continuing duty liability after effective cessation of the unit. Duty was therefore not fastened for the period after permanent closure, and the duty position required re-determination on that basis.
Issues: (i) Whether abatement of duty was available for intermittent temporary closure of the factory under Rule 96ZP(3); (ii) Whether duty liability could be fastened for the period after the factory had permanently closed and never resumed production.
Issue (i): Whether abatement of duty was available for intermittent temporary closure of the factory under Rule 96ZP(3).
Analysis: The assessee had opted for the special duty regime under Rule 96ZP(3), which did not contemplate abatement for temporary closure of the factory. The rule was understood as providing no relief for short closures of not less than seven days, and the assessee accepted that position for the intermittent closure periods.
Conclusion: Abatement was not available for the temporary closure periods, and the disallowance of abatement for those periods was upheld.
Issue (ii): Whether duty liability could be fastened for the period after the factory had permanently closed and never resumed production.
Analysis: The factory had stopped production from 1-7-1998 onwards due to disconnection of electricity, was never revived, and was ultimately sold to another party. The reasoning applied was that the special duty mechanism did not contemplate a situation of permanent cessation of the unit's existence, and that liability could not continue where the factory had effectively ceased to exist and no production was resumed.
Conclusion: No duty liability could be fastened on the assessee for the period after 1-7-1998.
Final Conclusion: The matter was remitted for re-determination of duty liability in light of the finding that liability could not survive after permanent closure, while the denial of abatement for temporary closure stood undisturbed.
Ratio Decidendi: A special duty scheme that does not provide abatement for temporary closure may still not sustain duty liability after permanent and irreversible closure of the factory, where production has ceased and the unit has not been revived.
TaxTMI 
AI Drafter ✕
TaxTMI 
