Capacity-based excise duty cannot survive proved factory closure without evidence of actual manufacture

Under the capacity-based excise scheme, duty could not be sustained for periods when the factory was shown to have remained closed, as closure notices, surrender of registration, and the absence of independent evidence of manufacture negatived the demand for those intervals. The demand was therefore unsustainable for the proven closure periods. The reduced penalty imposed by the appellate authority was also left undisturbed, because it had already been curtailed to a nominal amount, there was no Revenue challenge to that reduction, and no further interference was warranted on the facts.

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Issues: (i) Whether excise duty could be sustained for the disputed periods when the factory was found to have remained closed and no manufacturing activity was established. (ii) Whether the reduced penalty imposed by the appellate authority called for interference.

Issue (i): Whether excise duty could be sustained for the disputed periods when the factory was found to have remained closed and no manufacturing activity was established.

Analysis: The duty was computed under the capacity-based scheme under Rule 96ZP(3) of the Central Excise Rules, 1944. The record showed closure notices and surrender of registration during the relevant periods, and there was no independent material to prove manufacture during the closure intervals. The dispute turned on whether the surrender of registration could be ignored and duty still demanded merely on the basis of registration status. In the absence of evidence of actual manufacturing activity for the closure periods, the duty confirmed for those periods could not be sustained.

Conclusion: The duty demand was not sustainable for the periods during which closure was established.

Issue (ii): Whether the reduced penalty imposed by the appellate authority called for interference.

Analysis: Penalty under Rule 96ZP(3) arose from default in payment of the duty determined for the operating periods. The appellate authority had already restricted the penalty to a nominal amount. Since there was no appeal by Revenue against that reduction, and the remaining penalty followed the duty liability sustained for the period when manufacture was found to have continued, no further interference was warranted.

Conclusion: The reduced penalty was left undisturbed.

Final Conclusion: The appeal succeeded only in part, with relief confined to the extent consistent with the closure periods and the limited penalty already sustained.

Ratio Decidendi: Under the capacity-based excise scheme, duty cannot be sustained for a period of proved closure in the absence of material showing actual manufacturing activity, and a reduced penalty not challenged by the Revenue need not be enhanced.

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