Prospective operation of compounded levy option bars duty demand for factory closure period before valid exercise

Under the compounded levy scheme, the option to pay duty under Rule 96ZP(3) operated prospectively only from valid exercise and communication under Rule 96ZP(4). Because the factory remained closed from 1 August 1997 to 17 November 1997 and the option was furnished only on 17 November 1997, duty could not be demanded for the earlier period. The demand for the period before 17 November 1997 was therefore unsustainable, and liability attached only from 18 November 1997.

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Issues: Whether duty under the compounded levy scheme was payable for the period prior to the assessee's exercise of option and declaration of annual production capacity, when the factory remained closed during that period.

Analysis: The factory was closed from 1-8-1997 to 17-11-1997, and the option under Rule 96ZP(3) was furnished only on 17-11-1997. Rule 96ZP(4) requires intimation to the Commissioner for availing the scheme under sub-rule (3), so the option could operate only prospectively. The period of closure could not be treated as one for which duty under the scheme was payable before the option was exercised, and the demand raised for the earlier period was therefore unsustainable.

Conclusion: The demand of duty prior to 17-11-1997 was not sustainable, and the assessee was held liable to pay duty only from 18-11-1997.

Ratio Decidendi: Under the compounded levy scheme, the option to pay duty under Rule 96ZP(3) operates prospectively from the date it is validly exercised and communicated, and no duty can be demanded for a period of factory closure preceding such option.

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