Compounded levy on dismantled machines does not continue where production is impossible under the scheme.

Under the compounded levy scheme for stainless steel pattas and pattis, excise duty was linked to cold rolling machines actually installed, not to an irrebuttable liability detached from their existence. Applying the provisions under Rule 15(1) of the Central Excise Rules, 2001 and Notification No. 34/2001-C.E., read consistently with the earlier special procedure under Rules 96ZA to 96ZGG of the Central Excise Rules, 1944, the text notes that dismantled machines which could no longer produce goods were not exigible to duty. On that basis, the demand could not stand and refund could not be refused on the department's stated ground.

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Issues: Whether, under the compounded levy scheme for stainless steel pattas and pattis, excise duty remained payable on machines that had been dismantled and no longer operated, and whether refund of duty paid on such machines was admissible.

Analysis: The scheme under Rule 15(1) of the Central Excise Rules, 2001 and Notification No. 34/2001-C.E. was examined along with the earlier special procedure under Rules 96ZA to 96ZGG of the Central Excise Rules, 1944. The provisions governing the two schemes were found to be in pari materia. The Court accepted that the basis of the levy under the notification was the cold rolling machines actually installed, and not an irrebuttable charge disconnected from the existence of the machine. It further followed the Rajasthan High Court view that where a machine had been dismantled and no production could take place from it, no excise duty could be levied in respect of that machine. On that footing, the demand sustained by the lower authorities could not stand.

Conclusion: Duty was not payable on dismantled machines, and the refund claim could not be denied on the ground adopted by the department. The decision was in favour of the assessee.

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