Compounded levy demand fails where vague notice and unsupported capacity determination lack a reliable factual foundation.

A demand under the compounded levy scheme for pan masala/gutkha cannot be sustained where the show cause notice is vague, contradictory, and unsupported by relied-upon verification material. The Tribunal noted that no specific misdeclaration in the assessee's declaration was established, and the capacity determination rested on an unreliable factual basis despite admitted sealing of machines and prompt intimation to the Department. On those facts, the annual capacity determination and the resulting duty demand were held unsustainable and were set aside, with consequential relief granted to the assessee in accordance with law.

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Issues: Whether the demand and the order determining annual capacity of production under the compounded levy scheme for pan masala/gutkha were sustainable when the show cause notice was vague, contradictory, and unsupported by relied-upon verification material, and whether the capacity determination order based on the alleged machine position could stand.

Analysis: The show cause notice alleged an inspection and verification that was not supported by any relied-upon document and did not specifically allege misdeclaration in the appellant's declaration. The admitted facts showed sealing of 26 machines on the appellant's request and prior sealing of 4 machines, leaving 18 intended to be operated. The record also showed that the Department accepted sealing of the 4 machines and that the new compounded levy scheme had just come into force, with the appellant promptly informing the Department. In these circumstances, the Tribunal found the notice and the consequent determination to be marred by factual anomalies and absence of a reliable foundation.

Conclusion: The demand and the impugned capacity determination were held unsustainable and were set aside in favour of the assessee.

Final Conclusion: The assessee succeeded, the confirmed duty demand was quashed, and the appellant was held entitled to consequential relief in accordance with law.

Ratio Decidendi: A demand under the compounded levy scheme cannot be sustained on the basis of a vague or unsupported show cause notice or a capacity determination made without a reliable factual foundation, especially where the assessee's sealing request and declared machine position are admitted.

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