Compounded Levy Scheme penalty fails where duty paid was only provisional and later adjusted after rejection of the application.

Penalty under the Compounded Levy Scheme was unsustainable where the assessee's application for the scheme had been rejected and the duty paid during the pendency of that application was only provisional. That provisional duty was liable to be adjusted against the normal duty liability once ineligibility under the scheme was determined. In those circumstances, the assessee could not be treated as governed by the scheme for the purpose of imposing a penalty equal to duty, particularly because any delay in provisional payment had already attracted interest. The Tribunal followed the settled view that penalty under the scheme does not survive when the assessee is ultimately found ineligible.

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Issues: Whether penalty imposed under the Compounded Levy Scheme was sustainable when the assessee's application for the scheme had been rejected and duty had been paid provisionally pending such decision.

Analysis: The duty paid during the pendency of the application was only provisional under the scheme and was liable to be adjusted against the normal duty liability once the application was rejected. In that situation, the assessee was not governed by the scheme for the purpose of fastening a penalty equal to duty. The excess duty stood adjustable, and the delay in provisional payment had already attracted interest. The settled view relied on by the Tribunal also indicated that where an assessee is ultimately found ineligible for the scheme, penalty under the scheme does not survive.

Conclusion: Penalty under the Compounded Levy Scheme was not sustainable and was rightly set aside in favour of the assessee.

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