Provisional duty payment under compounded levy scheme barred penalty where differential duty was paid before final capacity determination.

Short payment of duty under the compounded levy scheme did not attract penalty where the dispute arose from annual production capacity determination and the duty paid during the relevant period was treated as provisional. Because the differential duty had already been discharged before final determination, the proviso to Rule 96ZP(3) of the Central Excise Rules was applied to hold that penal consequences were unwarranted. The assessee therefore avoided penalty on the short-payment issue.

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Issues: Whether penalty was attracted where the short payment of duty arose from a dispute regarding annual production capacity under the compounded levy scheme and the duty payments were provisional.

Analysis: The short payment was linked to the unresolved dispute concerning capacity determination under the compounded levy regime. The payments made during the relevant period were treated as provisional, and the differential duty had already been paid before final determination. In such circumstances, the proviso to Rule 96ZP(3) of the Central Excise Rules was applied to conclude that the case did not warrant penal consequences.

Conclusion: Penalty was not leviable, and the assessee's case succeeded on this issue.

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