Compounded levy under Rule 96ZP(3) bars closure-based abatement, but the related penalty was struck down.

An assessee who elects the compounded levy option under Rule 96ZP(3) cannot simultaneously claim abatement for factory closure under the proviso to Section 3A(3) or seek redetermination under Section 3A(4), because the rule operates as a self-contained duty scheme based on annual capacity and prescribed instalments. On that basis, remission for closure beyond seven days was unavailable and the duty demand was upheld. Penalty under Rule 96ZP(3)(ii) was, however, not sustainable in view of the governing precedent treating that penal provision as invalid, so the penalty was set aside.

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Issues: (i) Whether an assessee opting for payment of duty under Rule 96ZP(3) of the Central Excise Rules, 1944 could claim abatement for closure of the factory under the proviso to Section 3A(3) or redetermination under Section 3A(4) of the Central Excise Act, 1944. (ii) Whether penalty under Rule 96ZP(3)(ii) of the Central Excise Rules, 1944 was sustainable.

Issue (i): Whether an assessee opting for payment of duty under Rule 96ZP(3) of the Central Excise Rules, 1944 could claim abatement for closure of the factory under the proviso to Section 3A(3) or redetermination under Section 3A(4) of the Central Excise Act, 1944.

Analysis: The compounded levy scheme under Rule 96ZP(3) was treated as a self-contained option for payment of duty on the basis of annual capacity at the prescribed monthly instalment. The terminal condition in the rule excluded the benefit of both the proviso to Section 3A(3) and Section 3A(4). Accordingly, once the assessee had opted for Rule 96ZP(3), remission on the ground of closure for a period exceeding seven days was not available, and the demand for duty remained payable.

Conclusion: The issue was decided against the assessee and the duty demand was upheld.

Issue (ii): Whether penalty under Rule 96ZP(3)(ii) of the Central Excise Rules, 1944 was sustainable.

Analysis: The penalty provision in the compounded levy rules was held to be invalid in the governing precedent relied upon by the Tribunal. In view of that ruling, penalty could not be sustained under the said rule.

Conclusion: The issue was decided in favour of the assessee and the penalty was set aside.

Final Conclusion: The duty liability under the compounded levy scheme was maintained, but the penal component did not survive, resulting in partial relief to the assessee.

Ratio Decidendi: An assessee who elects to pay duty under Rule 96ZP(3) cannot simultaneously invoke abatement or re-determination under Section 3A(3) or Section 3A(4) of the Central Excise Act, 1944, and the penalty provision under Rule 96ZP(3)(ii) is not sustainable where the governing law declares it invalid.

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