Compounded levy duty on temporary machine closure may be computed pro rata, with interest only on delayed adjusted payment.

Under the compounded levy regime, where notified machines remained closed for a continuous period exceeding 15 days and due intimation was given, duty was treated as payable only for the actual period of operation. Full monthly duty was not a pre-condition to claim abatement, and the adjusted liability could be discharged on a pro rata basis, with interest payable only for delay in payment of the adjusted amount. On the same facts, the foundation for penalty did not survive, so the penalties were set aside.

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Issues: (i) Whether, on temporary closure of the notified machines for a continuous period exceeding 15 days, the assessee was required first to pay duty for the whole month and thereafter claim abatement, or was entitled to pay duty only on a pro rata basis for the actual period of operation under the applicable compounded levy rules. (ii) Whether penalties were leviable in the circumstances of the case.

Issue (i): Whether, on temporary closure of the notified machines for a continuous period exceeding 15 days, the assessee was required first to pay duty for the whole month and thereafter claim abatement, or was entitled to pay duty only on a pro rata basis for the actual period of operation under the applicable compounded levy rules.

Analysis: The closure of the machines for more than 15 days was not in dispute, and it was also undisputed that on the due date in the month the machines were not working. On that footing, the governing rule was applied to hold that payment of duty for the entire month was not a pre-condition for availing abatement. The duty liability had to correspond to the actual period during which the machines operated, with interest payable only for the delay between the due date and the date on which the adjusted duty was paid.

Conclusion: The assessee was entitled to discharge duty on a pro rata basis for the operating period, and the demand for full monthly duty was not sustainable; however, interest for the delayed payment of the adjusted duty remained payable.

Issue (ii): Whether penalties were leviable in the circumstances of the case.

Analysis: Once the duty position was held to be correctly worked out on the basis of the actual operating period, the foundation for penal consequences did not survive. The absence of any requirement to first pay the full monthly duty also meant that the assessee's conduct did not warrant penalty in the facts found.

Conclusion: No penalties were leviable, and the penalties imposed were set aside.

Final Conclusion: The appeal succeeded to the extent that the assessee was held entitled to pro rata duty computation and deletion of penalties, while liability to interest on the delayed adjusted payment was sustained.

Ratio Decidendi: Under the compounded levy regime, where closure for the qualifying period is established and due intimation is given, payment of duty for the entire month is not a pre-condition to abatement; duty is payable only for the period of actual operation, with interest alone attaching to any delay in paying the adjusted amount.

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