Compounded levy credit restrictions and special-scheme penalty limits under Central Excise Rules were strictly applied.

Rules 96ZH to 96ZM governing the compounded levy scheme for embroidery fabrics were read as a self-contained code. A manufacturer under that scheme was not entitled to avail or utilise capital goods or input duty credit before insertion of the second proviso to Rule 96ZI, and the amendment was treated as clarificatory; the utilisation of ineligible credit remained improper and the notice was within time. On penalty, Rule 96ZL was treated as prescribing the maximum penalty for contravention of the special scheme, so the higher penalty under the general provision was not sustained and was confined to Rs. 2,000.

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Issues: (i) whether a manufacturer operating under the compounded levy scheme for embroidery fabrics could avail and utilise capital goods/input credit before the insertion of the second proviso to Rule 96ZI; and (ii) whether the penalty could exceed the maximum prescribed under Rule 96ZL.

Issue (i): whether a manufacturer operating under the compounded levy scheme for embroidery fabrics could avail and utilise capital goods/input credit before the insertion of the second proviso to Rule 96ZI.

Analysis: The entitlement to credit was examined in the context of Rules 96ZH to 96ZM of the Central Excise Rules, 1944 and the effect of Notification No. 15/98-C.E. (N.T.). The amendment was treated as clarificatory, and the earlier Tribunal decisions on the same scheme were followed. On that basis, a manufacturer opting for the compounded levy scheme was not entitled to avail input duty or capital goods credit, and utilisation of such ineligible credit towards duty payment remained improper. The show cause notice was also held to be within time.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): whether the penalty could exceed the maximum prescribed under Rule 96ZL.

Analysis: The scheme under Rules 96ZH to 96ZM was treated as a self-contained code, and Rule 96ZL was read as prescribing the maximum penalty for the relevant contravention. Since the violation related to that scheme, the higher penalty imposed under the general penal provision was not sustained, and the penalty was restricted to the statutory maximum of Rs. 2,000/-.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The duty demand was upheld, while the penalty was confined to the limit fixed under the special scheme, and both appeals were dismissed.

Ratio Decidendi: A manufacturer governed by the compounded levy provisions under Rules 96ZH to 96ZM could not claim or utilise credit contrary to that scheme, and the penalty for its breach was confined to the special penalty provision prescribed for that scheme.

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