Compounded levy default attracts mandatory penalty equal to outstanding duty, and later payment does not remove the liability.

Under the compounded levy scheme, Rule 96ZO(3) required monthly duty instalments to be paid by the prescribed dates, and default triggered mandatory interest and a penalty equal to the outstanding duty. An unresolved challenge to the furnace-capacity order did not displace the operative duty liability, and the assessee had not paid even the reduced amount claimed for the relevant months. Later payment did not erase the statutory consequence of default. On that basis, the reduction of penalty was not justified, and the penalty remained payable on the outstanding duty as prescribed by the rule.

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Issues: Whether, under the compounded levy scheme, failure to pay the monthly duty instalments on the due dates attracted penalty equal to the outstanding duty and whether subsequent payment or an unresolved challenge to furnace capacity justified reduction of the penalty.

Analysis: The assessee had opted for payment under Rule 96ZO(3) of the Central Excise Rules, 1944, under which duty is payable in fixed instalments by the prescribed dates and default entails interest and penalty equal to the outstanding amount of duty. The order fixing duty liability on the basis of furnace capacity remained operative, and the assessee did not obtain any final modification of that order. The record further showed that duty was not paid even at the reduced amount claimed by the assessee for the relevant months. The statutory scheme treats the unpaid amount as outstanding on default, and later payment does not undo the penalty consequence. In light of the mandatory nature of the consequence under the rule and the principle applied in the cited precedent, the Commissioner (Appeals) had no basis to reduce the penalty.

Conclusion: The penalty had to be levied on the outstanding duty as prescribed by Rule 96ZO(3), and the reduction of penalty was unsustainable.

Final Conclusion: The assessee's challenge failed and the Revenue's appeal succeeded, resulting in restoration of the penalty imposed by the adjudicating authority.

Ratio Decidendi: Under Rule 96ZO(3), default in payment of the prescribed monthly duty instalments attracts mandatory penalty equal to the outstanding duty, and subsequent payment does not negate the statutory liability.

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