Deemed credit under compounded levy scheme remains available despite invoice references under Rule 96ZP, with penalties unjustified.

A recipient unit was entitled to deemed credit on inputs received from a supplier operating under the compounded levy scheme because duty under that scheme is discharged on the basis of the levy, not invoice-wise, and Notification No. 58/97-C.E.(N.T.) specifically allows such credit. The reference in the invoice to Rule 96ZP(3) did not defeat the claim, as that rule gives effect to Section 3A of the Central Excise Act, 1944. The recipient's credit could not be denied by questioning the supplier's duty discharge at the recipient's end; any differential duty dispute had to be pursued against the supplier by the proper jurisdictional officer. The penalties on both the recipient and the supplier were therefore not justified.

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Issues: Whether the recipient unit was entitled to deemed credit on inputs received from a supplier operating under the compounded levy scheme, and whether penalties imposed on the recipient and the supplier were sustainable.

Analysis: A unit working under the compounded levy scheme discharges duty on the basis of the levy determined under the scheme and not invoice-wise. For that reason, the law provides for deemed credit under Notification No. 58/97-C.E.(N.T.), issued under Rule 57A of the Central Excise Rules, 1944. Rule 96ZP is framed to give effect to Section 3A of the Central Excise Act, 1944, so the description in the invoice referring to Rule 96ZP(3) did not defeat the credit claim. The correctness of the supplier's duty discharge could not be examined at the recipient's end, and any dispute about differential duty had to be pursued against the supplier by the officer having jurisdiction over that unit.

Conclusion: The recipient was entitled to deemed credit and the penalties on both units were not justified.

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