Compounded levy duty liability survives rule omission, but interest and penalty fail where the levy provisions are ultra vires.

Under the compounded levy regime, omission of the rule and the invalidity of the scheme supported relief from interest and penalty, because such liabilities were not sustainably imposed once the relevant rule was held ultra vires. The underlying duty liability, however, remained recoverable where it had already accrued under the scheme, and omission of the rule did not extinguish that obligation. The order was therefore modified to retain the duty demand while setting aside the demands for interest and penalty, resulting in partial allowance of the appeal.

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Issues: Whether duty, interest and penalty demanded under Rule 96ZP(3) of the Central Excise Rules, 1944 could be sustained after the compounded levy scheme rules were held ultra vires and the scheme stood omitted.

Analysis: The dispute arose from default in payment under the compounded levy scheme. The reasoning drew a distinction between the liability to pay duty and the liabilities towards interest and penalty. Reliance was placed on the line of authorities holding that, where Section 3A of the Central Excise Act, 1944 and the relevant compounded levy rules do not validly support levy of interest or penalty, such demands cannot be sustained. At the same time, the demand of duty itself was treated as legally recoverable, since omission of the rule did not extinguish the duty liability already incurred under the scheme.

Conclusion: The demand of duty was upheld, while the demand of interest and penalty was set aside.

Final Conclusion: The impugned order was modified by retaining the duty demand and granting relief against interest and penalty, resulting in a partial allowance of the appeal.

Ratio Decidendi: Under the compounded levy regime, invalidity or omission of the rule may defeat demands for interest and penalty, but it does not, by itself, wipe out the underlying duty liability already accrued.

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